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

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 (], via Wikimedia Commons

Union Leader Calls Out Christie, New Jersey For Playing “Fiscal Games” That Led to “Self-Made” Pension Crisis

Chris Christie

Patrick Colligan, the president of the New Jersey State Policemen’s Benevolent Association, has written an op-ed piece in the New Jersey State-Ledger expressing his discontent with the report recently produced by the state’s Pension and Health Benefit Study Commission.

In the piece, Colligan chastises Christie for playing “fiscal games” with the state pension system:

The Commission should tell the public about the fiscal games going on behind their backs. Before the ink was dry on the pension reform law the governor began using increased employee contributions to reduce employer pension payments. When the Legislature tried to close that loophole and use the extra contributions for pension funding, the governor vetoed it.

Add that to the failure of the state to make its actuarially required pension contributions and you have the making of a self-made pension crisis. It is worth noting if full PFRS pension payments were made during the last 15 years, it would be funded in the mid-90 percent ratio and no one today would be discussing pension reform.

New Jersey does a great job of shifting costs to employees without ever tackling the reason for those costs. Health benefits are a prime example. If the state were truly interested in reducing their health care costs they can take a number of bold steps. First, cut out insurance companies and administer its own healthcare network.

Second, rein in pharmacy benefit manager costs. How much do these PBMs make off the state? Requests for that information are repeatedly denied. Contracts for prescription costs should be required to show the true costs and rebates for the medicines involved and how much of those costs are enriching the companies brokering the deals.

Finally, the state has too many health plan choices with no real cost containment strategies. The State could consider innovative approaches to control costs like State Health Benefits Program-owned patient care centers, and wellness and disease management.

Contrary to popular belief, no one wants a healthy, well-funded and long-lasting pension and health care system more than the people who pay for it and count on it for their retirement. Put us at the table and have an open mind about our thoughts, and the state would be shocked how fast pension and benefit costs are brought under control.

Colligan also spends a good portion of the piece talking about the funding situation of the Police and Firemen’s Retirement System (PFRS).

Read the whole piece here.

Chamber of Commerce Gives New Jersey “F” On Pensions, Fiscal Responsibility

Chris Christie

The U.S. Chamber of Commerce released a state-by-state report card yesterday, grading all 50 states on various areas, including education and fiscal responsibility.

New Jersey graded well on education. But it flunked the fiscal responsibility portion of the report card, earning a solid “F” from the Chamber of Commerce.

Why? The under-funded pension system was singled out as the main reason for the failing grade. From the report:

“Grade: F – New Jersey receives very low marks on fiscal responsibility. Only 65 percent of the state’s pension is funded, and the state’s most recent contribution was a meager 39 percent.”

More on the rationale behind the grade, from NewsWorks:

The grade is comprised of two factors: one, the percentage of pension obligations that are currently funded and, two, the amount of money allocated from each state’s 2012 budget for pension fund contributions.

For the first factor, the U.S. Chamber of Commerce calculates N.J.’s total pension funding at 65 percent. A few other states share that large a gap in available funds for pensioners. But no other state made as low a contribution to pension funds in 2012 as N.J.’s paltry 39 percent. Even renowned laggard Illinois managed to earmark 76 percent in funds toward pension obligations that year.

The N.J. Pension and Health Benefit Study Commission reported last week that N.J. has a combined $90 billion in unfunded pension liabilities. That’s three times our annual state budget. This week Fitch Ratings and Standard & Poor’s dropped our bond rating down yet again. There are no quick fixes to this, like millionaire taxes or amnesty programs or even higher contributions from already-strained state workers. Indeed, it’s unclear how to fix this at all.

Ten other states received F’s in the fiscal responsibility category.

View the entire report card here.

Time For New Jersey To Face the “Bitter Truth”, Says Pension Panel Chairman

Seal of New Jersey

The chairman of the New Jersey Pension and Health Benefit Study Commission, the panel assembled by Chris Christie to address the state’s pension problems, has published a column today in the New Jersey Star-Ledger.

In it, Thomas J. Healy writes about the “bitter truth” about pensions that people will have to swallow: that Christie’s previous reforms “did not come close” to fixing the problem and now the options for fixing the state’s pension system “are uninviting”.

From the column in the Star-Ledger:

It’s time for New Jerseyans to swallow some bitter truth about our state’s public employee pension and health benefit systems.

The commitment of elected officials over two decades to offer benefits that were unaffordable, coupled with the failure of the state to make required pension contributions when they were due, has landed New Jersey on the edge of a gaping fiscal cliff. Unless the crisis is dealt with firmly and comprehensively, it is certain to become more dire in the period ahead.


Concerted efforts have been made during the past 10 years to fix the problem. However, significant pension plan reforms in 2010 and 2011 have not come close to correcting two decades of underfunding by both Democratic and Republican administrations in Trenton.

Fortunately, awareness of the need to actively address the problem cuts across both parties. Former Gov. Jon Corzine has acknowledged that “current benefits are financially unsustainable.” And, in the course of naming a 10-member bipartisan commission on Aug. 1 to study the problem and recommend possible long-term solutions, Gov. Christie warned that “if we don’t do more, and we don’t do it now, the state will be forced to make harder choices in the future.”

While this bipartisan understanding is helpful, it doesn’t diminish the complexity of the job ahead, as outlined in the just-released status report of the New Jersey Pension and Health Benefit Study Commission. Indeed, the options for making the public employee pension and health benefits systems fiscally viable are uninviting. Employees have already made concessions, and a tax increase of the size necessary to fund the escalating cost of benefits (in a state which already has one of the highest tax burdens in the nation) is unrealistic. So is any effort to divert revenues from an already tight state budget.

The commission’s second report will propose specific recommendations for reforming New Jersey’s pension system.

The first report, which came out last week, presented an overview of the fiscal situation surrounding pensions but didn’t provide ideas for reform.

John Bury: 4 Things The New Jersey Pension Panel Failed To Say

stack of papers

Over at Bury Pensions, actuary John Bury covers New Jersey pension developments as close as anyone. And there’s been a lot to talk about lately, as the New Jersey Pension and Health Benefit Study Commission just released their first report last week.

But what wasn’t in the report is just as important as what was. While the report served as a great primer on how New Jersey’s pension mess came to be, it fell short on some counts.

Here’s John Bury’s take on what was left out.


By John Bury

The report did a good job of piecing together available public information but anyone could have done that. What this panel of experts was supposed, and failed, to do is bring their knowledge of the truth of the situation to the general public.  Perhaps some did not possess that knowledge and others who did wimped out but here is what should have been in the report:

Actuaries lie

A 54% funded ratio and $37 billion shortfall for the state portion of the New Jersey pension sounds bad enough but people should be aware that these figures are generated by actuaries whose sole responsibility to their politician clients is to keep contribution amounts low.  Ask yourself how a plan returning 16.9% in trust earnings when it is assuming 7.9% worsens their shortfall.  It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public plan actuaries are paid for when right means higher contributions. Then there is the smoothing canard that the panel completely ignores, quoting the $44 billion actuarial value of assets as real rather than the $39.5 billion market value.

Politicians cheat

$14,9 billion in skipped ARC payments under Christie in cahoots with the legislature who not only get to decide how much they put in but they also get to brag that their selected mini-contributions are the full statutorily required amounts though they get to define what is statutorily required.

Benefits are protected

Hinted at on page 18:

One of the reasons the reforms described above have had little impact on the unfunded liability is that many of them do not apply to all current employees.

And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing).  That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.

Hybrid plans won’t work here

Though a Defined Contribution plan is the only type of plan that governments, run by political considerations and without independent funding discipline, should be allowed to sponsor moving new employees into these plans would only worsen the underfunding since a valuable input into the ponzi scheme New Jersey currently runs (employee contributions) would be shut off and new hires who are typically younger could wind up getting even higher benefits than under an age-weighted defined benefit system.  In the private sector the shift to cash balance plans worked because older employees could be forced (or tricked into) accepting them.  It would take a massive amount of ‘creativity’ and will to work the same magic in the public sector where employees have more leverage and  politicians are not bargaining with their own money.

New Jersey Pension Commission Releases First Report

Chris Christie

It came a little behind schedule, but the New Jersey Pension and Health Benefit Study Commission released its preliminary report yesterday.

This first report was all about identifying and detailing the causes and current state of New Jersey’s pension funding shortfall. As such, no recommendations were made for fixing the system.

Although the report, notably, did not name Chris Christie, it did lay a portion of the blame on politicians for creating the pension mess. From

The report in part blames politicians for failing to properly fund the pensions and siphoning surpluses during robust years resulting in a $37 billion unfunded liability in the state pension funds.

“While high benefit levels are one driver of unfunded liabilities, the lack of state contributions is a critical contributing factor,” the report states. “Put simply, if the state cannot find the economic means and discipline to consistently fund its pension obligations, the system will fail. The funding decisions over the last twenty years are telling examples of bipartisan contribution to fiscal distress.”

The report also said that Gov. Christie’s 2011 pension reforms didn’t sufficiently address the system’s problems.

Matt Arco of put the report’s talking points more succinctly:

1. The looming unfunded liability is massive

2. Retiree health care costs are massive (and unpaid for)

3. Blame can be spread across the board

4. Failure to fix the problem will cost millions more

5. The 2011 reforms weren’t enough

The full report can be read here.