CF9: Who Pays For All This

Page 11 of the Roadmap outlines the panel’s conception  of where the state will get the money to pay off that $180 billion in pension and health benefit liabilities:

…because local health benefits costs are so high, even moderate reforms would result in huge local savings. If aggregated, these savings could permit a higher overall level of post-reform benefits and more equitable State/local allocation of benefit obligations at no additional cost to local taxpayers. In contrast, as illustrated in Table IX in the Implementation Issues section of this Report, a State-level-only reform would generate a need for over $1.5 billion in new revenue at the State level. Given the dire need, the extent to which State funds already play a significant role in funding local benefits, and the fact that local savings would not exist but for statutory and constitutional reforms intended to address the State-level crisis, the Commission believes that it is appropriate to dedicate these local savings to help close the State and local pension funding gaps. At the same time, the Commission is sensitive to the existing burdens on municipalities and believes that the local impact of this approach should be limited to aggregating local savings for use in funding the pension deficit. As a result, this reform would be cost-neutral to local governments.

So how much was the state thinking of offloading?

CF8: The New Plan

Page 10 of the Roadmap outlines the panel’s conception of the benefits that it believes the state can afford:

Obviously, to be an effective reform, the new plans must also cost less going forward than the old plans would. As a starting point, the Commission has assumed that the employer and employee contributions would each be 4% of salary, with 8% employer and employee contributions for employees who, like many firefighters and police officers, do not participate in Social Security. Based on a total State/local government payroll of $26.637 billion, the Commission estimates the employer cost of the new plans would be $1.23 billion. The Commission believes that this is an affordable initial baseline for contributions, subject to augmentation in the event that quantification of costs and savings establishes the affordability of a higher level of employer contributions.

But what would that mean in real money for, let’s say, a public employee retiring after 25 years of service at a final salary of $100,000?

Below we compare what this retiree would get under the current plan formula* and then what they would have gotten had the cash balance plan being pushed been in place instead during their working lifetime under both the PERS and PFRS plans.

CF7: Transferring Assets to Unions

New Jersey is trying to entice the unions into accepting the Christie Freeze plan by dangling the remaining trust assets as bait.  Page 6 of the Roadmap (with accompanying footnote 23) explains the deal:

transferring the assets, liabilities and full responsibility for the existing pension and new retirement plans to employee entities willing and able to assume this obligation. 23

23 The “employee entities” holding the plans may have to be structured as “government plans” to comply with ERISA and other regulatory requirements and tax considerations. In this Report, “employee entities” refers to plan structures that satisfy these requirements while providing employees with the greatest permissible degree of ownership and control over the assets and liabilities of the plans. Determining the exact form of entity that would satisfy these requirements will be one of the tasks to be undertaken by the Implementation Task Force discussed in this Report.

Later on page 12 of the report another sweetener:

The preceding elements of the Commission’s approach would reduce the State’s obligation to fund the existing pension plans to a predetermined sum each year. This would, in turn, facilitate transfer of the assets and liabilities of these plans and of the new retirement plans to employee entities willing and able to assume these obligations.  If this were done, employees would control their own destiny with respect to these benefits – and assume the risk of managing the plans to ensure that the available funds are sufficient to pay for the provided benefits. This transfer would permit the State to provide the bond market with a much greater degree of cost certainty.

Here is the real deal on this proposed transfer:

CF6: Cash Balance No Cure-all

The pension commission suggested implementing a cash balance plan (per page 10 of the Roadmap):

Once the existing pension plans are frozen, new plans would be needed to provide employees with the means to earn future retirement benefits. The Commission believes that what is known as a “cash balance” plan provides the best model for the new plans. A cash balance plan is a hybrid defined benefit plan that expresses the employee’s benefit as an account balance that, as proposed by the Commission, grows by “pay credits” based on an employee’s salary, and by periodic “interest credits” based on the account’s balance and some defined measure of investment performance. Under the form of a cash balance plan envisioned by the Commission, an employee would be guaranteed both the contributions based on pay credits made to his or her account.

Design is all-important but if the idea is to have a flat percentage of salary as the  “pay credit” it would solve the equity problem of participants close to retirement accumulating massive benefits but the biggest problem and source of all the coming misery remains.

CF5 – Ballot Question Hustle

For the Christie Freeze to work public employee pension and health care benefits must be cut significantly and the cleanest way to accomplish this is to put it into the New Jersey Constitution. However a ballot questions saying ‘benefits can be cut at any time to whatever level we damn well please’ probably won’t pass so they coupled it with a completely useless provision to ‘guarantee the certainty of a pension funding payment with a constitutional amendment’ and that is what Governor Christie emphasized:
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But what good is a guarantee of a payment number that you get to pick?  The 2011 pension reform law also had a guarantee and that didn’t amount to much.

CF4: COLAs A Footnote

A decision in Berg v. Christie might be moot if the entire Christie-Freeze plan gets enacted.  Page 9 of the Roadmap describes the freeze:

Freezing existing pension plans at the State and local levels means that the plans would be closed to new members and that existing members would no longer accrue additional benefits under those plans. Existing plan assets and future State contributions would be used fund the benefits of existing retirees and the benefits accrued by employees through the date of the freeze. The plan-funded 46 pension benefits of existing retirees would not be affected, and no one would lose a benefit credit for service before the freeze.

But what about the cost-of-lving-adjustments on pensions that were eliminated in 2011 and have been the subject of court action ever since?  As commenter truthnolie noticed when you follow that 46 next to the word ‘plan-funded’ to its footnote:

CF3: Why a Ballot Question

For the proposed pension reforms to work the New Jersey State Constitution needs to be changed and the reasons are explained on page 12 of the pension commission’s report: