New Jersey Pension Reform – A Model for America?

Keith Brainard of NASRA didn’t think so, saying that “New Jersey would make a terrible place on which to base pension policy”:

whereas our governor in the 30 seconds he devoted to public pensions in his state of the State address sees what New Jersey is doing as a “Model for America”:

He might be right, but is that a good thing?

The main reform passed in June, 2011 was the virtual elimination of retiree cost-of-living-adjustments, even for current retirees.  This might save taxpayers $120 billion over 30 years but another way of phrasing it (by a non-speech-writer) would be that it cost retirees $120 billion over 30 years and will make sure that their smaller pensions are there when they retire.*

Making promises that you have no possibility of fulfilling since you can always renege on whatever you need to with impunity – this is the new American model?




* It won’t.  Either the COLA elimination will be overturned and the plans will crash right then and there or, more likely, the real problem (very generous benefits and lowball contributions) will persist until we get to pay-as-you-go and decisions as to whether to pay retirees or campaign donors with public funds will be stark without the filter of actuarial science as practiced in the public sector.

About these ads

28 responses to this post.

  1. Posted by muni-man on January 8, 2013 at 8:26 pm

    NJ’s UNCOLA is completely legal and won’t be overturned. Paygo will never see the light of day either. The unions will eventually reluctantly agree to big reductions when confronted with the snotty reality that the plans will fold if they don’t. It’s just gonna take them some more time to realize that fact, that’s all.


  2. Posted by Tough Love on January 8, 2013 at 9:03 pm

    Quoting …”The main reform passed in June, 2011 was the virtual elimination of retiree cost-of-living-adjustments, even for current retirees. This might save taxpayers $120 billion over 30 years but another way of phrasing it (by a non-speech-writer) would be that it cost retirees $120 billion over 30 years and will make sure that their smaller pensions are there when they retire.*

    Yes John that’s correct, but to be fair, we should also say that even AFTER the COLA freeze, their pensions will STILL be 2-3 times greater in value at retirement than the pensions typically afforded Private Sector workers retiring at the SAME age, with the SAME years of service, and the SAME age at retirement ……. and, only 10-20% of the total cost of that 2-3x greater pension is paid for by the workers’ contributions (INCLUDING all the investment earnings thereon)., the balance the responsibility of the Taxpayers.

    Are you suggesting that it was unfair to make this rather modest change to the current incredibly generous Plans ?


    • Yes, it was unfair. And it wasn’t so modest. Keeping the same COLA bump-up when inflation returns could easily double a benefit within 10 years though that won’t be much of a factor as assets dwindle and other patches emerge.

      What needed to be done was to get an honest value of the liabilities and then negotiate a plan to deal with them – pay up; renege; or some combination. As it stands now these politicians (Christie, Sweeney on down) seem to really believe they solved something and can move on. Illinois politicians for all their moronic schemes (Squeezy; hiring yes-men actuaries) at least aren’t doing victory dances in the endzone.


      • Posted by Tough Love on January 8, 2013 at 10:04 pm

        Ok, we’ll have to agree to disagree.

        When Public Sector workers pay only 10-20% of the total cost of a Pension Plan 2-3 times as generous as what Taxpayers get, all while making no less in cash pay …… and …. when those very rich pensions clearly resulted form Union/Politician collusion & self-dealing, in my opinion, the COLA elimination is only a small portion of the larger reduction that should have been implemented.

        As a Taxpayer, I’m tired of being suckered by the excessive pensions and benefits afforded ALL Public Sector workers.


        And “negotiate” with the Unions/members ? Are you serious … they will never willingly give up anything of material value. Even if/when they believe the funds won’t be there, they assume and demand that Taxpayers still pay full benefits pay-as-you-go, and if that fail they will assume the Federal Gov’t will ultimately ride to their rescue.

        Not getting FULL promised pensions is not even on their radar … which is WHY they will never give up anything of material financial value.


        • Posted by Anonymous on January 8, 2013 at 11:27 pm

          Just keep voting the way have been and nothing much will get done. I think you sadly realize you have no real choices when it comes to politicians


    • Posted by marbs on January 10, 2013 at 11:02 am

      Yes it was unfair to eliminate COLA for currently retired members who planned their retirement on the promise of seeing a modest (60% not 100% like Social Security) of the CPI-W each year. Had they been promised a fixed benefit they like current employees could have planned and put aside more for their living expenses in retirement. Most Police and Fire do not participate in Social Security so there is no safety net there. Also many who have been retired for 10 or more years have modest pensions based on salaries back then. Just base salary by the way no OT etc. The cola was easy to take away from them as they have virtually no one to represent them, it was bullying by Christie plain and simple. The cola should be reinstated for any employee retired on the day it was taken away. Could you imagine what would happen if Obama even suggested to end the cola for Social Security you would virtually have a civil war. BTW the local portion of Police and Fireman’s retirement system has reached the funding threshold for cola reinstatement because while not 100% the State had the local towns and counties contribute closer to the amount required to fund pensions. Police and Fire employees also always contributed what was asked of them without fail while the state and locals took pension holidays. The state needs to start contributing their fair share I bet Chrisite does not tell the feds that the State will be skipping the Social Security contribution for the employees covered by SS. I would love to see the Feds reaction to that.


  3. YES, our Governor, Chris Christie, has done very well, and we expected no less on these several natural forces and ongoing governance.

    But, has he rid us of that cruel school property tax?
    Has he still pushed for a lower income tax, instead?

    What of drastically curtailing high public pensions, and dropping public retirees medical?
    Does he claim the NJ Budget is balanced though about $100 Billion is needed to fund the promised pensions?

    Will he disclose the truth about needing to reverse these unfunded promises?
    Does he borrow for roads, bridges,……rather than raise the gas tax for pay as you go?
    Does he still collect Parkway tolls on the select group who have to use it, yet free for the rest of us living elsewhere in NJ? (and half the tolls are used to collect them)!

    Has he proposed opening Medicare for all, at cost, eliminating in one step all the profits and Obamacare?

    Seems he has hung his hat on ‘promised’ $51billion aid, not addressing foreclosures, …..and likely much less aid needed to offset property tax losses.


    • Posted by Anonymous on January 9, 2013 at 12:15 pm

      Seems to me that Sweeney’s comments were right on the money. Sandy had propelled CC to super stardom but HS has done nothing to change any of your mentioned points.


  4. Posted by Larry Littlefield on January 9, 2013 at 12:20 pm

    That cost of living adjustment was an unfunded retroactive pension benefit, and New Jersey had every right to eliminate it, particularly for existing employees.

    The problem is this, however. Even if you take away the unjust retroactive pension enhancements for the employees, you are still left with a huge hole caused by the unjust underfunding by the taxpayers over the years.

    What is your point of view, John?

    On one hand you seem to think it is unfair to take away the extra benefits that public employees, who already had the richest pensions, got in political deals that were fraudulently described.

    On the other hand, you seem to imploy that it is fair for New Jersey to eventually take away the somewhat more reasonable pensions the employees had been promised when they took the top, because past taxpayers didn’t pay for it.

    My view would be the opposite.


    • Larry,

      Whether public workers are properly compensated is beyond me. My issue is that benefits in New Jersey for sure and likely for all other government plans are being grossly understated and it’s unfair to all parties.

      I see these COLA thefts as immoral and only possible within a judicial system that values expediency.

      What I’m looking to accomplish is having an honest value placed on these benefits and then an informed discussion about how to proceed can be had.


      • By now, after these past several years, you must have all the facts necessary to come up with ‘the’ solution…What is this solution?


        • It’s a democracy so the solution is open for debate. However the debate should be honest which means most of the people providing solutions to date should be shamed into silence.

          For example, in New Jersey the liabilities are $200+ billion and the assets are $70 billion. Will that gap be paid somehow or defaulted? Ignored through actuarial magic should not be an option any longer.

          Going forward I have always advocated a Defined Contribution approach:


          • Good, a race horse, not the camel of old!

          • Posted by Tough Love on January 9, 2013 at 4:26 pm

            John, Thank you for your last few comments. I too have struggled to understand your overall position.

            The debate for solutions will no doubt include the Unions and their membership. In an earlier comment I said Quoting :

            “And “negotiate” with the Unions/members ? Are you serious … they will never willingly give up anything of material value. Even if/when they believe the funds won’t be there, they assume and demand that Taxpayers still pay full benefits pay-as-you-go, and if that fail they will assume the Federal Gov’t will ultimately ride to their rescue. Not getting FULL promised pensions is not even on their radar … which is WHY they will never give up anything of material financial value.”

            Sorry if I was a bit abrasive there, but my view of the Unions’ desire to negotiate material reductions is clearly different than yours. I believe the Unions will ONLY negotiate material reductions AFTER one group of their membership has already taken a significant hit that they cannot undo. Then a different “reality” of what the future could hold might set in and lower their threshold for material givebacks.

            This is how it played out in Rhode Island. Sure, Rhode Island’s Treasurer Gina Raimondo is very sharp and was respectful of the emotional issues in dealing with the Pension stakeholders, but if Central Fall, RI’s pension had not already failed with retiree getting very material haircuts, it is doubtful she would have carried sufficient legislative votes for statewide Plan reductions.

            Lastly, as an example of the Union/worker mindset, one of the California Public Sector Unions is suing to reverse a Plan change that simply stops the end of career pay/spiking, and hence the goosing their pension. They even acknowledge that it’s done. Their position is simply that is always been that way for those that retired before them and demand the same. With this kind of mindset (and I doubt that it’s different in NJ’s Unions) “negotiating” with the Unions for material givebacks seems but a waste of time. The OTHER stakeholders should “discuss” all available options, but actual change (which needs to include material pension reductions) will need to be forced upon the Unions.

          • Posted by muni-man on January 9, 2013 at 6:22 pm

            I totally agree with you. The union four horseman strategy (political payoffs, collective gouging, binding obfuscation and leveraging their monopoly operating environment status) makes true negotiating an impossibility. All the while they sanctimoniously extol the need for fairness ‘at the bargaining table’ which is pure PR bullshit → leverage (Union-100%; Taxpayers-0%), just the way they like it. In view of this hopelessly lopsided advantage, the best course of action is for NJ to just control the tap. Continue the underfunding bleed until the unions see the funds are really gasping. Eventually, when confronted with the steely fact that their pension fund is REALLY near death with future payouts likely to cease in ‘x’ months, they’ll cave in but not until then. The unions know paygo is politically impossible and will never happen and I seriously doubt they’d be able to stomach the high-wire act of betting the farm on a Federal bailout, which would never make it out of Congress anyhow.

            Fact is, NJ has a helluva lot more freedom to maneuver than other states. Gotta tip my hat to those pols who had the true foresight and backbone to flatly resist that union push for ‘pensions are contracts’ language when it was proposed at the ’47 NJ constitutional convention. It was a brilliant legislative move when they submarined that and it made today’s UNCOLA safe and easy to implement, w/o any union interference at all, and solidly backed by NJ case law. NJ has a lot more options to use in the future to control things and NJ publics aren’t thru with benefit reductions, not by a long shot.

          • Posted by Tough Love on January 9, 2013 at 8:36 pm

            Muni-man, While I too doubt their would be a Federal bailout (at least one w/o very painful limitations, caps, and conditions to the membership), I’m
            not as convinced as you that paygo is “politically impossible” given the very significant influence the Unions currently have in the NJ Legislature.

            The legislators will certainly need to hear equally loud “NO NO NO” demands from the Taxpayers to resist the Union pressure to fully pay pensions via paygo.

        • Posted by muni-man on January 9, 2013 at 9:00 pm

          Taxpayer reaction will be deafening, furious and immediate. Pols will be petrified to even hint at considering a paygo scheme. Unions better start waking up because if they play pension roulette, they’re gonna be the BIG losers.


          • Posted by Tough Love on January 9, 2013 at 10:22 pm

            “Taxpayers” are too disorganized and rarely do anything that could even remote called deafening. And, are basically non-contributors to political campaigns hence garnering little political influence via bribery (as the Unions routinely do).

            That’s WHY the Public Sector Unions have been so successful in financially raping the Taxpayers for so many many years.

          • When we have to sell our kitchens/baths to pay the taxes, there will be a revolt.

          • Posted by muni-man on January 10, 2013 at 10:30 am

            I disagree with you on that point. Depending on the details, I’d imagine a paygo scheme could hike a TP’s overall tax tab anywhere from 50% to 200%+, and that would be a permanent hike. There’s simply no way that TP’s will ever tolerate anything close to that kind of hit to their disposable income, and pols know it. Every tax system is based on ‘voluntary compliance’ and most gooberment entities have a fair knowledge of their tax-levying thresholds. NJ and some other blue states are getting dangerously close to those thresholds and if they pass them all hell will eventually break out – the collection system will start to unravel as a trickle of noncompliance becomes a flood (there’s a ton of tax revenue not collected thru automatic withholding or at point of sale), town cash flows start to dry up in a hurry, etc. Gooberments simply don’t have any effective way to cope with massive tax noncompliance, but they’ll surely never tell you that. The old saw largely holds true – if you want to ensure less of something, tax it more. Hike every kind of tax imaginable to the moon for a paygo scheme and watch tax revenues and public employee headcounts plummet. Widespread noncompliance will become the new parlor game.

  5. Posted by muni-man on January 9, 2013 at 1:18 pm

    Link to pending pension litigation by state at:

    There are four NJ actions (pages. 30-32) – the two COLA elimination cases (NJEA vs. State that was tossed by the US District Court and Berg vs. Christie that was tossed by the NJ Superior Court which the union says it will appeal but nothing has been filed so far), the judges’ hike in benefit contribution costs (upheld in Superior Court but it will be made moot by a new const. amendment requiring them to pay more), and retiree medical benefits impairment. All in all, it looks like NJ publics aren’t doing so hot with any of them.


  6. Posted by eatingdogfood on January 9, 2013 at 1:39 pm

    Democratic Hustler Politicians + Corrupt Greedy Unions = BANKRUPTCY BABY!


  7. Posted by chrispickard23 on January 10, 2013 at 7:00 am

    The whole world of pensions is riddled with flaws. The UK has it’s own crisis, and the arguments here are simplar to complaints about the NHS and civil service pension in the UK. I however thing the real answers lay in a complete rethinking and encouraging complete alternatives to pensions. Try googling “how to build a pension by shopping” or “build a pension by blogging” for instance. The internet is now giving individuals the chance to earn much more easily and may be the answer – at the moment!


  8. Posted by marbs on January 10, 2013 at 10:45 am

    Could you


  9. Posted by Anonymous on January 23, 2013 at 12:38 am

    Reduced pensions – no jobs and 500,000 public retires feeling illish. Get ready NJ for the bag is about to burst- pay now or pay later- but you will pay…….no way out now.


  10. Posted by Anonymous on August 2, 2014 at 7:28 pm

    Doesn’t look like the pensions or colas will be toast after appellate court ruling. i don’t hear anybody comparing public worker pensions to that in the corporate world. Corporate world pensions are private pensions which are far more generous than any public employee could ever wish to receive. Taxpayers were not paying the required amounts in taxes to cover pension obligations for years, so now itis time to pay up. The state chose to pay for other things and let the pension debt ride. now the bills are coming due. Pay up and shut up the same as you have to do when any bill comes in that you agreed to just like a mortgage. You couldn’t put off paying your mortgage for 20 years and then claim poverty when you owed mnay thousands of dollars. and taxpayers can’t get away with it either just because the debt is too painful. Whitman gave the rich a windfall in income tax cuts that wereunaffordable. let them pay it back now in tax reinstatements.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Get every new post delivered to your Inbox.

Join 237 other followers

%d bloggers like this: