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

New Jersey Credit Rating Cut By S&P; Record 8th Downgrade Under Christie

Chris Christie

Credit rating agency S&P has downgraded New Jersey’s credit rating by one step, to A. The downgrade comes just 5 days after Fitch downgraded the state’s rating.

Notably, the state has been downgraded eight times under Chris Christie, the most under any governor in the state’s history.

Reported by Bloomberg:

The reduction to A, the sixth-highest level, with a stable outlook follows a Sept. 5 downgrade by Fitch Ratings. It gives New Jersey the same general-obligation grade as California, which is on track for an upgrade as revenue exceeds Democratic Governor Jerry Brown’s estimates. Only Illinois has lower ratings than New Jersey among U.S. states.

“New Jersey continues to struggle with structural imbalance,” S&P analyst John Sugden in New York said in a statement today. “The governor’s decision to delay pension funding, while providing the necessary tools for cash management and budget control, has significant negative implications for the state’s liability profile.”

Christie, a 52-year-old Republican in his second term, broke his promise this year to make $2.5 billion in extra pension payments in fiscal 2014 and 2015 to help trim unfunded obligations. He has called for more changes to the plan as costs for employee benefits crowd out other state spending.

[…]

New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion with Christie’s changes. It then grew to $47.2 billion in 2012 as he made only partial contributions.

For fiscal 2014, which ended June 30, Christie contributed $696 million, less than half the planned $1.6 billion. Superior Court Judge Mary C. Jacobson, ruling in Trenton on June 25 in a lawsuit filed by state worker unions, said Christie was within his power to reduce the payment because he faced a fiscal emergency.

All three of the major rating agencies – Fitch, Moody’s and S&P – have downgraded New Jersey’s credit rating in 2014.