NJ Pension Case Has Implications for Credit Rating, Says Moody’s

In the near future, the New Jersey Supreme Court will rule on a pension case that Moody’s says has big implications for the state’s credit rating.

The lawsuit in question challenges the constitutionality of a 2011 pension reform law that froze cost-of-living-adjustments on retirees’ pensions.

An appellate court ruled in favor of retirees; if the Supreme Court does the same, the state will owe retirees backpay to 2011.

Here’s what Moody’s says about the case, from NJ.com:

Moody’s Investors Service again sent up a warning flare that a possible New Jersey Supreme Court ruling striking down cuts to public retirees’ pension benefits would soak the struggling retirement system with new pension liabilities.

But in its latest report released Wednesday on the “extraordinary decisions and challenges” the Garden State faces, the Wall Street ratings agency estimated the public pension system’s $55 billion unfunded liability ($113 billion if measured under different accounting standards) would increase by a third if state and local governments are forced to restore retirees’ cost-of-living increases.

The state portion of the unfunded liability would increase from $40 billion to about $53 billion and the system would fall from 51 percent funded to 44 percent if the court strikes the freeze down.

“The heightened burden, combined with an increase in benefit costs, would hurt New Jersey’s pension fund cash flows and funded status and the state’s ability to reach structural budget balance,” Moody’s said.

Retirees are angry because, as part of the 2011 reform law, they made a deal: they’d accept the freezing of their COLAs, and in exchange the state promised to make its full actuarially-required contributions to the pension system.

It took the state two years to renege on its side of the bargain.

Photo by Joe Gratz via Flickr CC License