Tag: cash balance pension plan

New Jersey Pension Commission Release Report; Proposal Would Bring Savings to State, Cuts to Workers

New Jersey Gov. Chris Christie unveiled a series of pension reform proposals at his budget address yesterday.

But he’s taking his cues from a just-released report from his pension commission, which he set up in the summer of 2014.

Christie acknowledged in mid-2014 that future pension changes would likely mean benefit cuts for workers. Now, we are getting more details about the specifics of the reforms Christie and his panel have in mind.

The five key pillars of the pension reform proposal, summarized by NJ.com:

1. Frozen Plan

The current pension plan would be frozen. Retirees would continue to receive their benefits, though without cost of living adjustments. Active employees would no longer accrue benefits under that plan.

2. “Cash balance” plan

The state would create a new “cash balance” plan, which is considered a hybrid between defined-contribution and defined-pension plans. Workers’ benefits are shown as a cash balance, funded by employee and employer contributions and investment returns, but they can take their payout as a lifetime annuity.

3. Health care premium change

Employees would pick up a larger share of their health care premiums, and health care coverage would be less generous overall. On average, employees pay 18 percent of their health care premiums. Under the proposal, that would increase to 25 percent, though higher-paid employees pay more. State and local governments pay, on average, 95 percent of the total cost of health care coverage, but the proposal calls for new health care plans that reduce the employer cost to 80 percent.

4. School plans

Local school districts would take on local education employee retirement benefits, which are currently paid for by the state, and the cost of the new cash balance plan. The commission estimates the savings from the health care cuts would more than cover those new responsibilities.

5. Constitutional amendment

Lawmakers would be asked to pass a proposed constitutional amendment that would appear on the November ballot and guarantee public employees adequate pension contributions from the state.

The commission’s report can be read here.

 

Cover photo credit: Walter Burns [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Pennsylvania Lawmakers: Municipal Pension Reform Needed

Pennsylvania flag

Two Pennsylvania state Representatives – Rep. Seth Grove (R) and Rep. Keith Greiner (R) – have penned a column on Lancaster Online arguing for the reform of municipal pension systems.

Specifically, they argue for reforms that would remove pension negotiations from the collective bargaining process and would transfer new hires into a cash balance plan.

Grove and Greiner explain:

Gambling with pension funds needs to end by both local governments and employee unions. Pension negotiations need to be permanently removed from the collective bargaining process to ensure that our police and firefighters are not at risk of having their pensions destroyed, and taxpayers aren’t put on the hook because of short-term and short-sighted decisions.

These two fixes are both long-term solutions, but what can we do in the short term? The answer is change the pension benefit structure for new hires to a cash balance pension plan. A short-term solution will require new revenue to reduce the unfunded liability. A cash balance plan allows municipalities to use excess stock market earnings to pay off the unfunded liability.

Instead of raising taxes or creating new taxes, this allows the pension plan to fund itself. The cash balance concept also has long-term taxpayer protections built in. New hires will have their own accounts, just like a 401(k), which allows them to transfer their retirement between jobs and ensures taxpayers are not on the hook for future underfunding of pensions.

It also provides employees with the ability to take their retirement by monthly payments, which is just like a traditional defined benefit plan. And since a cash balance pension concept is considered a defined benefit pension plan by IRS guidelines, you can still combine pension funds together and ensure you do not underfund the old pension systems. Lastly and most importantly, it will not affect our current public safety personnel’s pensions, but will ensure that new hires will still receive a good pension, which they deserve.

We do not want to honor the dedication and service of public safety personnel by putting them in the poor house after retirement. However, we also do not want to shift costs from pensions to welfare.

Ultimately, these changes are actually about hiring more police and fire personnel and protecting the pensions of current police and fire personnel.

Furthermore, the changes are about ensuring that all municipalities across Pennsylvania are financially stable and that commuter taxes go away. There are tremendous upside benefits to all stakeholders.

Read the entire piece here.