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New Jersey Lawmaker Puts New Pension Proposal On Table

Chris Christie’s pension commission members aren’t the only ones brainstorming pension reforms in New Jersey lately. A Democratic assemblyman has proposed a plan that would shift new hires into a hybrid plan with some attributes of defined-contribution plans and some attributes of defined-benefit. Reported by The Star-Ledger:

Assemblyman Troy Singleton (D-Burlington) last week sent some public union leaders a draft of a bill he’s considering introducing that would keep the current pension system in place for those already enrolled in it, but shift new public workers to a “collective defined contribution retirement program” – a sort of mix between a traditional pension plan and a 401(k).

“It may be something we don’t introduce, but it may be something we do in a different form. But I’d like to start some dialogue in where our pension system goes in the next step for our pension system,” Singleton said in a phone interview “The only thing I would tell you is it’s still a work in progress.”

The idea did not get a warm reception from the public worker labor unions, even though Singleton himself comes from the private side of organized labor, as an official in the Northeast Regional Council of Carpenters.

And Singleton acknowledged that the plan would not do anything to solve the pension’s unfunded liability of about $40 billion, which he said must be dealt with through increased state payments.

Singleton provided the Star-Ledger with an outline of how the plan would function. The gist:

Workers would establish accounts that both they and their employers would pay into, though the workers would pay three times as much as the employer. The money would be managed by a “professional money management provider” that could charge fees of no more than 0.25 percent of the total, while the plan’s appointed board and the State Investment Council would determine where the money would be invested.

The investment returns would be annually credited to the retirement accounts. But if the return is greater than 8 percent, the excess would go into a reserve fund, which would later be used if the investments lost money. The plan would allow for “bonus” payments to the retirement accounts if the reserve fund is healthy enough.

It’s far from the current pension system, in which workers’ final retirement payments stay the same, no matter how good or bad the funds’ investments are doing.

Christie appointed a commission last month to examine the state’s pension system and propose reform ideas. The commission’s final report will come in the next few months.

Hawaii Labeled “Sinkhole” State by Watchdog Group

A few names consistently pop up in any discussion of states with the most pension debt—Illinois, New Jersey and a handful of other states are frequently cited as shouldering the heaviest pension burdens.

Hawaii isn’t always on that list. But according to one watchdog group, Truth in Accounting, the state’s pension burden is among the worst in the country. The Hawaii Reporter recaps:

Only Massachusetts, New Jersey, Illinois and Connecticut are in worse fiscal condition that Hawaii.

Donna Rook, president of StateDataLab.org, a division of Truth in Accounting, said Hawaii has been one of the five worst states since this annual study was started in 2009.

“The average Hawaii taxpayer’s share of the state’s debt is $27,000 after available assets are tapped. Since we set aside both capital assets and debt related to capital, the remaining debt is primarily unfunded pensions and retirement health,” Rook said.

The $27,000 per taxpayer is about 57 percent of the average resident’s annual income, Rook said.

Sheila Weinberg, founder and CEO of Truth in Accounting, said Hawaii financial statements show $4 billion in retirement liabilities, but the state actually has nearly $15 billion of unfunded retirement promises.

Hawaii has only $5 billion to pay the state’s bills, which total $18 billion, Weinberg said.

The same Truth in Accounting report also shared some better news: Hawaii has vastly improved the timeliness of its year-end financial reports.

For more data on Hawaii, visit Truth in Accounting’s data lab here.

New Jersey Pension Panel Reiterates That Politics “Not Part of Process”

State-level financial decisions don’t have to be political, but they often are anyway.

So when New Jersey Gov. Chris Christie put together a panel to come up with proposals for reforming the state pension system, many critics said the panel was constructed in a way that satisfied Christie’s political needs.

Columnist Charles Stile put that sentiment to paper earlier this month, and his words echoed the thoughts of many of Christie’s critics:

In reality, the nine-member panel has a short-term political objective — salvage Christie’s latest crusade to squeeze cost-saving concessions from New Jersey’s 770,000 public workers and retirees.

This new panel, whose members have résumés reaching from Wall Street to the Ivy League, will give Christie some much-needed cover, a chance to say that dramatic ideas to cut pension and retiree health benefits are not the ideas from a potential Republican presidential candidate, but the ideas of some of the nation’s best and brightest technocrats.

But Christie, as well as the panel members, have held steadfast to the idea that their proposals will be removed from anybody’s personal politics. The Star-Ledger reports:

[Panel Chair Thomas J.] Healy stressed that the commission is evenly split — three Republicans, three Democrats, and three independents — and that politics won’t be part of its process.

“We’ve got a group of people who are very smart,” he said. “We’re balanced. The two meetings and two conference calls we’ve had so far have been enormously apolitical. Which is the goal.”

[…]

Kevin Roberts, a spokesman for Christie’s office, defended the panel.

“The entire commission, Tom Healey included, is a group of extraordinarily well-respected and accomplished professionals who are free from politics,” Roberts said.

“Tom’s only charge is to take a cold hard look at the facts and he has helped call on some of the foremost experts on these matters to do just that.”

The panel has said its recommendations could come as soon as October, but it could be later. Their first report is due in September.

New Jersey Bill Would Make Corrupt Politicians Pay For Court Costs—From Their Pensions

In 2013, New York paid $600,000 in pension benefits to politicians who were occupying jail cells instead of offices.

That’s because New York’s constitution makes it nearly impossible to take away a person’s pension benefits—even if that person is a corrupt politician who was booted from office and sent to jail.

The same is true around the country, as at least six states protect pension benefits under their constitutions. It’s a well-meaning provision, but in the case of corrupt politicians it often has unintended consequences.

New Jersey has been paying attention to New York’s conundrum, and it wants no part of that game.

Three state legislatures (Sen. Christopher J. Connors, Assemblyman Brian E. Rumpf and Assemblywoman DiAnne C. Gove) recently proposed two initiatives that would shield taxpayers from the expenses that come with corrupt politicians—and force those politicians to pay for their court costs, among other things, by garnishing their pensions. From The Sand Paper:

The delegation’s first reform measure would make public officers or employees convicted of crimes affecting their office or found at fault in certain civil actions liable for the cost of prosecution and legal representation if received through the expense of public funds. Under the legislation, convicted persons would be subject to pension garnishment to satisfy the liability.

The second measure would allow a public employer to levy a judgment for restitution of illegally obtained funds against a convicted public employee’s retirement allowance. Provisions of the legislation would apply to any official’s or employee’s pension contribution to principal state-administered retirement systems.

One interesting segment from the lawmakers’ joint statement on the initiatives:

“When holding public office, you are answerable to the people whose tax dollars fund the operations of government,” the statement said. “Therefore, it would be appropriate to garnish the public pension of convicted politicians as a means of recovering the cost of their prosecution and legal defense as well as funds illegally obtained through the use of their government position. To do so would mitigate the cost of corruption on taxpayers, whose interests should be put first as the victims of such crimes.”

Christie Vetoes Early Retirement Incentives for Teachers

Chris Christie used his conditional veto power to reject one portion of a broader bill that would make it easier for privately run schools to operate in New Jersey.

The portion of the bill vetoed by Christie would have given certain teachers–specifically, those likely to face layoffs in the near future–a range of perks to retire early. From NJ.com:

Gov. Chris Christie has rejected changes to the Urban Hope Act, specifically taking exception to language that would allow Camden public school teachers to retire early.

The change, he wrote in his conditional veto Monday, would put too much of a strain on an already floundering state pension system.

“The bill … authorizes early retirement incentives to certain school district employees, and may exacerbate the solvency of the pension system,” Christie wrote.

Christie asked the Legislature to reconsider the bill without the retirement incentives.

Specifically, the vetoed portion would have offered early retirement incentives to school employees in Camden, New Jersey.

The Urban Hope Act, if passed, would open the door for charter schools to operate in Camden. But the city has already had to lay off nearly 250 public school employees, and more layoffs are likely on the way.

That’s why public teacher’s unions negotiated the line item in the bill giving teachers a chance to retire early as opposed to being laid off. From NJ Spotlight:

The bill had included an expansive early retirement package that had irked some on both the Democratic and Republican sides.

Assemblyman Troy Singleton, D-Camden, had said the package was only fair in the face of expected layoffs and other cuts in Camden. The New Jersey Education Association supported the early retirement piece, but nonetheless opposed the bill overall.

But Christie called the early retirement package hypocritical at a time when the state is grappling with a pension liability crisis.

The bill now goes back to the Senate. If the legislature approves Christie’s changes, the bill will go back to Christie. He is expected to pass the bill if it stays intact.

Meet the Nine People Tasked With Reforming New Jersey’s Pension System

When it comes to pension reform, this isn’t New Jersey Gov. Chris Christie’s first rodeo.

Christie signed his state’s initial pension overhaul back in 2010. A major part of the law was the requirement that New Jersey slowly work its way up to paying its full actuarially required contribution into the state pension system.

But that plan never came to fruition, as Christie is using a large portion of the state’s pension contributions this year and next to fill budget shortfalls elsewhere.

Now, Christie says he’s going to give pension reform another shot. Last week, he announced plans to create a panel to analyze the state’s pension system and brainstorm ideas for cutting costs. From the NJ Star-Ledger:

The Pension and Health Benefit Study Commission will review the history of New Jersey’s public retirement system, which has been neglected by governors of both parties since 1997, who did not make required contributions whenever they ran into budgeting difficulties. Christie’s special commission will also look at reforms implemented in other states and then recommend changes to the governor.

Although Christie has been on the town-hall circuit this summer speaking of the need to reduce current contributions for public workers, those benefits in some cases are protected by the state constitution – and could be hard to claw back.

Christie, however, may be able to reduce health benefits, which are not as strongly protected as pensions under New Jersey law. He could also try to increase pension contributions for future workers, and their retirement age, as he did in 2011. Still, a Democratic-controlled Legislature is unlikely to go along with those moves.

Today, he announced the people that will populate the panel. Here’s a breakdown of who they are:

Thomas J. Healey – Partner, Healey Development LLC

Mr. Healey joined Goldman, Sachs & Co. in 1985 to create the Real Estate Capital Markets Group, and founded the Pension Services Group in 1990. He became a Partner in 1988, a Managing Director in 1996, and remains a Senior Director of Goldman Sachs. Prior to joining Goldman Sachs, Mr. Healey served as Assistant Secretary of the U.S. Treasury for Domestic Finance under President Ronald Reagan.

He is Chairman of the Rockefeller Foundation Investment Committee and is actively involved with other charitable institutions. Mr. Healey graduated from Georgetown University in 1964 and Harvard Business School in 1966.

Tom Byrne – Founder, Byrne Asset Management:

Tom founded Byrne Asset Management in 1998. He serves as the Managing Director and Head of Equity Portfolio Management and brings over 35 years experience in the securities industry to his clients.
Governor Chris Christie appointed Tom to the New Jersey State Investment Council. The Council oversees New Jersey’s public pension fund assets, currently about $73 billion. Tom also serves as a trustee and treasurer of The Fund for New Jersey and is a trustee of several other civic organizations. He also served two terms as Chairman of the Democratic State Committee in New Jersey.

Tom is a graduate of Princeton University (1976) and Fordham Law School (1981).

Ray Chambers –Special Envoy, United Nations:

Ray Chambers is a United Nations Special Envoy for Financing the Health Millennium Development Goals and For Malaria (United States). [He] is a philanthropist and humanitarian who has directed most of his efforts towards at-risk youth.

He is the founding Chairman of the Points of Light Foundation and co-founder, with Colin Powell, of America’s Promise — The Alliance for Youth. He also co-founded the National Mentoring Partnership and served as Chairman of The Millennium Promise Alliance.
Chambers is the founder and Co-Chairman of Malaria No More, with Peter Chernin, President of News Corporation. He is taking a leave of absence from that role to focus on his appointment as the United Nations Secretary-General’s Special Envoy for Malaria.

Leonard W. Davis – Chief Investment Officer, SCS Commodities Corp:

Mr. Davis has organized and managed private equity, technology, and natural resource companies. He has been the principal financial manager in a private equity company and has been the Chief Financial Officer to the lead investor of a natural resource company active in metals and energy.

Mr. Davis received his B.S. in Accounting from Spring Garden College and is a Certified Public Accountant.

Carl Hess – Managing Director of Americas, Towers Watson:

Carl A. Hess (age 52) has served as Managing Director, The Americas, of Towers Watson since February 1, 2014, and has also served as the Managing Director of Towers Watson’s Investment business since January 1, 2010. Prior to that, he worked in a variety of roles over 20 years at Watson Wyatt, lastly as Global Practice Director of Watson Wyatt’s Investment business. Mr. Hess is a Fellow of the Society of Actuaries and the Conference of Consulting Actuaries, and a Chartered Enterprise Risk Analyst. He has a B.A. cum laude in logic and language from Yale University.

Ethan Kra – Founder, Ethan Kra Actuarial Services LLC:

Ethan Kra is an independent actuary, specializing in litigation support/expert witness, advice on multi-employer plan exposures and strategies and the financial aspects of executive benefits. Previously, he was a Senior Partner and Chief Actuary-Retirement of Mercer, where he consulted in the areas of the design and funding of pension and group insurance benefits, structuring and funding of non-qualified pension benefits and the proper accounting for expense of employee benefits.

He specializes in analyzing the economic and accounting implications of financing strategies and vehicles for employee and executive benefits. For over 17 years, he chaired Mercer’s Actuarial Resource Network, a committee of the senior technical actuaries throughout the United States.

Ken Kunzman – Partner, Connell Foley LLP

Kenneth F. Kunzman was Chairman of the Connell Foley Executive Committee from 1995 to 2002. He has been a partner in the firm since 1968 and has been responsible for a variety of areas of law.

Additionally, Mr. Kunzman serves as Chairman and Trustee of the Corella A. and Bertram F. Bonner Foundation of Princeton, NJ which provides scholarships for needy students of 26 colleges based upon community service. He is Trustee Emeritus of Caldwell College, former Trustee of St. Peter’s Prep, and Co-Chairman Emeritus of Seton Hall University Pirate Blue Fund. Mr. Kunzman served as Captain, US Air Force from 1962-1965.

Mr. Kunzman serves as a member of the Board of Trustees and the Executive Committee of the Scholarship Fund for Inner City Children and is the former Chairman of the Essex Legal Services Foundation, where he continues to serve as a Trustee.

Larry Sher – Partner, October Three Consulting LLC

Larry Sher is a member of the actuarial consulting team and part of the senior leadership for October Three. Larry also is head of our dispute resolution practice, which provides support to clients in disputes related to their retirement plans, both in litigation and otherwise. Larry’s experience in this area is extensive, having served as an arbitrator outside of litigation and as an expert in many lawsuits, including prominent cases involving cash balance pension plans. Larry is a highly sought after expert and advisor.

Margaret Berger – Principal, Mercer Consulting

One thing is certain: the panel has no shortage of impressive resumes. But it’s ideas, not resumes, that will effectively reform New Jersey’s Pension System. Pension360 will keep you updated on subsequent developments surrounding the The Pension and Health Benefit Study Commission.

Unions Rev Up New Appeal In New Jersey Pension Case – Read the Full Complaint Here

Unions lost the first round in the pension case playing out in New Jersey, when a judge ruled last week that New Jersey was too cash-strapped to make its full contribution to the pension system. The state instead diverted that money, totaling over $800 million, towards balancing the state budget.

Unions were hoping, and still are, for a court ruling that would reverse state Gov. Chris Christie’s decision to divert that money.

To that end, attorneys for the labor groups amended their court filings on Wednesday to update their argument that Christie broke the law when he slashed the state’s pension contribution.

The contribution, unions argue, was legally required due to a law that Christie himself signed in 2011. From the Asbury Park Press:

The updated court filings are a step toward a new hearing, expected in August, and fuller vetting of the issue by Jacobson, who said claims about the 2015 budget and pension payments needed time to become “ripe.” Christie made changes in the new budget days after Jacobson’s prior ruling.

“The amended filings reflect the fact that the governor didn’t make the full 2014 payment and made his changes in the 2015 budget,” said NJEA spokesman Steve Baker. “Other than that, there’s no substantive difference in the arguments we’ve had all along.”

Christie spokesman Kevin Roberts pointed to the Republican governor’s past comments on the court case, when Christie called the spending cut “one of the hard choices the people of New Jersey expect me to make.”

“For our state’s families who are already overburdened by high taxes, raising taxes even further would not solve a problem created by decades of neglect and irresponsibility,” Christie also said.

The unions will have to make a stronger argument to Jacobson about Christie’s ability as governor to set fiscal priorities for such things as hospitals, nursing homes, tuition aid and other programs. In the June court hearing, the unions also failed to force Christie to turn $300 million from state surplus as a down payment on the shorted pensions. “The governor determined it would be extremely unwise to not maintain that amount,” Jacobson told the lawyers for the plaintiffs.

Read the full complaint here:

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Photo: “New Jersey State House” by Marion Touvel Licensed under Public domain via Wikimedia Commons

Christie Says New Pension Reform Plan Coming

Back in 2011, New Jersey Gov. Chris Christie signed into law a pension reform measure designed to eventually fix the funding status of the state’s ailing pension funds.

A big part of that law was ensuring that the state gradually began making bigger annual payments to the System. But that part of the plan hasn’t worked out, as Christie decided this year to take the funds meant for the pension system and allocate them toward balancing the budget—a balanced budget is mandated by the New Jersey constitution.

The move was highly publicized and highly scrutinized. But Christie now says he is drawing up a new proposal for pension reform in New Jersey, and he is putting on a series of town hall meetings to introduce the plan. From NJ Advance Media:

Gov. Chris Christie came to the Jersey Shore today to kick off his “no pain, no gain” summer tour to introduce a pension reform proposal, but details of a plan were scant.

The governor promised to unveil a proposal by the end of the summer to tackle the state’s economic woes, promising that unless the Democratic-controlled state Legislature enact reforms, New Jersey is headed toward bankruptcy.

“We have to pare back benefits, that’s what we have to do,” Christie declared in Long Beach.

“You cannot raise taxes enough in New Jersey to pay for the pension hole that’s been dug over the period of time that these exorbitant benefits that have been promised to people,” he said. “No on in public office, believe me, myself included, wants to come out here and say ‘I have to pare back in public benefits.’”

Christie has said a specific plan is on its way — but it won’t be unveiled yet.

When pressed by a resident at the shore town hall to discuss his plan, Christie said his office is “looking at a bunch of different options right now,” but added it won’t be ready to be rolled out until the end of the summer.

“There are going to be some really difficult things,” he said. “There’s not a lot of places left to do things except to look at a whole different variety of ways to reduce benefits or to increase contributions by employees.”

Raising the retirement age again is also on the table for consideration, Christie said.

“But even then, the bottom line is that there will be a reduction in benefits,” he said. “It’s the only way to do this.”

It appears that details won’t be disclosed for the time being. The one detail that Christie seemed comfortable revealing was that New Jersey pensioners will be looking at smaller benefits moving forward. But come September, it will be interesting to see what Christie’s proposal consists of.

New Jersey, facing pension crisis, slapped with credit downgrade

Standard & Poors downgraded New Jersey’s credit rating today, and—surprise, surprise—the state’s pension funds were a major factor.

S&P downgraded New Jersey’s credit rating one notch. It has gone from what S&P considers a “high grade” (A+) to a “medium grade” (AA-).

The downgrade comes despite efforts by lawmakers, including Gov. Chris Christie, to curb the state’s pension woes. Those efforts included mandating higher annual payments by the state, raising retirement ages, freezing cost-of-living-adjustments and increasing employee contributions.

From the New Jersey Spotlight:

In explaining the decision to lower New Jersey’s credit rating from AA- to A+– a rating higher than only California’s A and Illinois’s A- among the 50 states – S&P’s analysis specifically cited a “trend of structurally unbalanced budgets that include only partial funding of pension obligations and the reliance on one-time measures that are contributing to additional pressure on future budgets; a large and growing unfunded pension liability; significant postemployment benefit obligations; and an above-average debt burden.

Notice the bolded statements—that’s a whole lot of ways for S&P to say that pensions are crippling the state’s finances.

And you can’t blame them. New Jersey’s pension fund remains underfunded by about $52 billion.

Photo Credit: Bob Jagendorf via Wikimedia Creative Commons

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