Grading Pension Reform in New Jersey

This year’s pension reform bill is out and I will try to explain the proposals.  Rather than quoting text I will insert the page numbers (which are on the top of the page not the bottom) from the bill followed by a brief description of the change, my thoughts, and a letter grade as regards how effective each proposal is likely to be for staving off plan bankruptcy.

  • (2) In addition to the trustees there will be a committee overseeing the pension system.  Useless.  If you can’t trust the trustees what’s another committee going to get you?  In the next reforms are we going to get more commissions, committees, and boards until there are more people overseeing the plan than actually benefiting from it (assuming the overseers don’t benefit in some way already)?  F-
  • (21) Employee contribution rate for those now putting in 5.5% of pay goes to 6.5% immediately and then another 1% is phased in over 7 years.  Expect the unions to call this an 18% increase but, as I said before, the total dollar impact of all the proposed contribution hikes will come to about $250 million annually into a fund that’s paying out about $8 billion a year for now.  D-
  • (22) Judges will have their contribution rate raised from 3% to 12% (because they have the most generous plan) but that’s phased in over 7 years.  Acknowledgement of the generosity of the Judicial plan but with a long enough phase-in for current judges to skate a little longer. D
  • (26) Prosecutors contribution rate goes from 7.5% to 10%. ibid above but without the phase-in. D
  • (26) Police and Fire contribution rate goes from 8.5% to 10% D
  • (33) State Police contribution rate goes from 7.5% to 9%. D
  • (33) Open 30-year amortization will change to Closed with the 2018/19 valuation, stay Closed for 10 years, then return to Open at a set 20 years.  Too technical for details but this is a gimmick to keep the contribution down that is being phased-out at about the time all the money will be gone anyway.  F+
  • (34-35) Change in Early Retirement Age requiring 30 years of service and a reduction of 1/4% per month prior to age 65.  Theoretically would decrease benefits around 2036 when it’s academic but, for now, will slightly reduce the calculated required contribution so as to speed the date of bankruptcy. F
  • (39) It’s not underlined but it does say (new section) and here is where the co-payments for health insurance are delineated ranging from 3% to 35% of the cost of coverage depending on your salary with a four-year phase in of the full cost for current employees.  Will likely be scaled back further and will wind up as more of a transfer from property-tax payers (after higher salaries are negotiated to offset this sacrifice) to the insurance industry. C-
  • (52-53) No more Cost-Of-Living-Adjustments for anybody. B if it stands up in court.
  • (54) If the government does not make their contributions anybody and everybody can sue.  If you read any part of this bill it has to be this section on page 54.  It might as well have said: “We know…you know….believe us, we know you know…we politicians are scumbags who can’t be trusted but if we stiff you again then you can sue us and trust your future to the New Jersey judicial system.  F-
  • (81) A State Health Benefits Plan Design Committee is set up.  (see first bullet) F-

Overall grade: D (and if it weren’t for the COLA elimination – F).

35 responses to this post.

  1. Posted by Tough Love on June 15, 2011 at 1:23 am

    If the COLA elimination is PERMANENT (and there isn’t a partial offset somewhere) it’s indeed a biggie. Adding a COLA to a (non-COLA) plan with age 55-60 retirements add a full 1/3 increase to the cost, so (reversing the math and) pulling it out saves us a solid 25%. This is way bigger than the 9% rollback Christie is looking for. Expect a court fight on this one.

    By the way, does the COLA elimination proposal apply to those already retired BEFORE its implementation? Certainly would be nice.

    And for the screaming-mad Civil Servants …….. all I can say is that Private Sector Plans NEVER have automatic annual COLAs (but are granted on rare occasions when Plan assets are flush and management is giddy with profits).

    If if the Plan goes belly-up, we’ll probably be pay-as-you-go (out of general revenue) for a few years before a full fledged tax revolt. The saving from the COLA elimination stays with us.


    • From my reading it’s no COLAs for anybody. A retired cop I know seems to anticipate that it will happen and sincce they haven’t gotten a COLA for a couple of years now they’ve gotten used to it. But when the bargaining begins they may try to keep it for those below a certain benefit level – maybe keeping COLAs until you’re at $50,000 a year.


  2. Posted by muni-man on June 15, 2011 at 9:43 am

    According to the schedule, most will definitely be paying 25% plus for healthcare in a few years,
    Hope it holds. The pension legalities are academic if the plans go under.


  3. Posted by Ed Vant, jr. on June 15, 2011 at 10:01 am

    Dear John, where is the bill to be found? Regards, Ed Vant, Jr.

    Another subject, We have a man who is good with a spread sheets and financials, Mike Gumport ( who is going to look at the 2011 Union County Budget. Any help you can give him would be appreciated. I have given him the Emails which you sent to me about your recent visit.


  4. Posted by buddyroo on June 16, 2011 at 12:04 am

    So what is the likely verdict in terms of the solvency of the pension fund? I.e. will these reforms save the pension fund indefinitely, give us an extra 5 years or so, or do your former predictions still hold (i.e. bankrupt within a few years)? What is the punchline on if and when the pension fund goes broke?


    • By one measure it’s already bankrupt as the remaining assets ($70 billion after the losses of the last 6 weeks) aren’t enough to annuitize the $8 billion being paid out to current retirees.

      By another measure, the higher employee contributions have no effect since it will only increase the employee portion of the fund that will need to be returned when that’s all that’s left (when it gets to about $30 billion).

      Stopping COLAs will help but scaring more public employees into retirement won’t so the upshot of these changes likely brings us a few months closer to the inevitable of pay-as-you-go.


      • Posted by Tough Love on June 16, 2011 at 1:51 am

        John, What’s your take once we hit pay-as-you-go (pension & retiree healthcare payouts from general revenue)….

        Which taxes (income, property, sales, etc) do you think will take the brunt of this, and what % increases are we talking about ?

        Will it be a slow but growing “pain”, or is it big enough to lead to a tax revolt ?

        Or perhaps, a haircut on retiree pensions ?


        • Likely a combination of taxes since the annual payout when the plan gets to the point where there are only the employees’ own contribution left in it could be in the $12 billion range. A gas tax alone won’t do it.

          An innovative, easy-to-collect tax would be one on the pensions themselves especially since a quarter of retirees live out of state and if they pay taxes at all on their money it’s to other states. What NJ could do is impose a progressive tax on NJ pensions which would be easy to collect since they’re writing the checks anyway and can collect it through mandatory withholding.


  5. The state of NJ is getting ready to throw its pensioners under the bus. In the recent “agreement” reached between Governor Christie and the “leaders” of the Senate and Assembly have decided to forgo cost of living increases for those retirees receiving NJ pensions. While on the surface this may seem a reasonable and “acceptable” compromise, closer scrutiny reveals that this is an insidious plan that will leave pensioners who had worked their entire lives and paid their agreed to amounts into the system faithfully, (unlike the state of NJ) with a rapidly decreasing standard of living and potentially totally broke.

    Let’s analyze what will happen. We all know that that inflation is increasing and will continue to accelerate as the Federal Reserve continues to print more dollars to protect the interests of Wall Street and the too big to fail” banks. The official government figures for inflation stand at around 2.5% to 3%, but everyone who has to support a family knows that these highly manipulated figures do not represent the real rate of inflation., a highly regarded website that calculates the real rates has determined that the current inflation rate is at 12%, not the much lower government figure.

    Now consider this: if the true rate of inflation is 12% as it appears to be, IN 4 SHORT YEARS PENSIONERS WILL LOSE HALF OF THEIR BUYING POWER! Consider how much buying power will be lost over 8 years, or 12 years. These pensioners will have close to NOTHING!

    Governor Christie talks about “shared sacrifice”, but in reality he gave tax cuts to millionaires and billionaires while cutting programs for those who need it the most and now the pensioners. This is Robin Hood in reverse, he is taking from the poor to finance tax cuts for the rich. Where is the shared sacrifice here? Will the millionaire bankers, hedge fund managers, and corporate executives suffer a 50% cut in their income in 4 years? You can bet you would hear howls of protest from them if he tried to do that.

    This “pension” reform needs to be exposed for what it really is. This is nothing less than a total reneging on their social contract with the people who worked their entire lives in service to the public. Let’s not forget that it was not the police, public nurses, teachers, and firefighters who caused the state’s economic problems. The problem was caused by a precipitous drop in revenue and the ones who caused it were the Wall Street types, the big bankers, and the speculators. These people paid themselves $millions in bonuses for a job well done and they still get tax cuts from the governor while the pensioners will be left with nothing?


    • Posted by Tough Love on June 19, 2011 at 8:03 pm

      Private Sector Plans do NOT include COLAs … and neither should Public Sector Plans (you’re NOT “special” … at OUR expense).

      And 12% inflation ??? If you believe that, you’re nuts.


      • Posted by Retiree2004 on June 26, 2011 at 1:35 am

        Us “Public Sector”choose to do these jobs. Some enter burning buildings in the dead of winter or the heat of summer. Others go after to apprend murderers, sex offenders,pedophiles, gang members, armed robbers, dope dealers etc. We do not want to be “special” on your expense, we just want what we were promised in our contracts and contributed into.


        • Posted by Tough Love on June 26, 2011 at 2:20 am

          You were “promised” too much, BECAUSE your Unions colluded with our elected representatives to approve generous pay, pension and benefit packages in exchange for campaign contributions and election support.

          Sorry, but we (the taxpayers) do NOT intend to honor the phony and unjust “promises”.


  6. Posted by G. Santamaria on June 20, 2011 at 8:39 pm

    I don’t care if private sector plans don’t have annual automatic COLAs. The public sector employees in question were PROMISED that they would have them. It was in their contracts. The private sector employees never were promised them – not the same thing.


    • Posted by Tough Love on June 20, 2011 at 11:02 pm

      Promised where? ….. at a “bargaining table” with nobody representing taxpayer interests. Your Unions’ campaign contributions and election support corrupted the process, with our corrupt/enabling vote-selling, contribution-soliciting elected officials more than willing to sell favorable votes for election support.

      Sorry buddy … this is just the just inning in the reversal of many of these “promises”.


  7. Posted by TomS on June 21, 2011 at 11:59 am

    Sick of hearing about the private sector. Public servants take less pay to have the better benefits. We in the public sector are in no way responsible for the choices you in the private sector have made. If you knew going in to your career that you were not going to be eligible for a better retirement package then YOU should have planned better, saved more, stopped treating yourself to the things you should not, and could not afford in order to save money. It sounds like Socialism. Those who planned for their retirement and were successful, should pay money to those entitlement cry-babies who did nothing till they found out it was too late. The state needs to take some of the discretionary funds it has currently being used to fund the lazy and take care of its contractual obligations first.


    • Posted by Tough Love on June 21, 2011 at 7:58 pm

      Quoting …”Public servants take less pay to have the better benefits. ”

      Bull … that ended 10-20 years ago. All but the highest occupation Public Sector professionals (e.g., doctors, lawyers, some IT professionals) have both greater “cash pay” and FAR FAR greater Pensions & benefits.

      Youwould be wise to plan for the reversal of that advantage short-swift !


      • Posted by TomS on June 22, 2011 at 9:05 am

        You should collect your thoughts, organize same and then try again. Can’t understand what you’re trying to say here. Are you saying that publc sector employed doctors(whoever they are?), lawyers, and IT professionals earn MORE than their private sector counterparts? Or are you saying that every OTHER public sector job has outearned their private sector counterparts for the last 20 years? Neither statement is accurate. YOU would be wise to plan on higher taxes short-swift! (whatever that means…shish) The state will easily lose the COLA battle with current retirees in court, which is their plan to place blame and placate folks like YOU. I figured I hear from Tough Love on this. Sounds like one of those cry-babies I mentioned. Oh…and…yes, I’d like fries with that Tough Love.


        • Posted by Tough Love on June 22, 2011 at 12:06 pm

          My words were fine. Seems you didn’t see the word “but”. No, most doctors, lawyers and a few other high-level occupations often make less “cash pay” in the public sector, hence justifying a higher level of pensions and benefits.

          For the 99+% of all other Public Sector workers, their “cash pay” alone is greater, so there is no justification for greater pensions and and benefits.

          The battle on COLAs will be interesting. If you win, you’ll loses anyway, as it just considerably decreases the (already low) probability of salvaging NJ Public Sector Plans. You guys are so thick … the near-term Plan failure is not a mirage. Create a few spreadsheet projections. It’s almost impossible to avoid.

          (And that was supposed to be …”short-shrift”.)


          • Posted by TomS on June 22, 2011 at 5:22 pm

            The only reason the pension plans are in this mess is that NJ government hasn’t made their matching deposits for nearly 17 years …taking 40 billion out of the system. The Governor does have the option of raisng the money needed to cover CURRENT pension obligations but doesn’t want to raise taxes. That may not be possible and still provide the discretionary spending to programs the state’s LAZY people have been abusing for years and now can’t/don’t want to live without. Tell me there are no lazy people collecting state money in this state. To alter future benefits makes sense, but when you contract to retire you do so with your total benefits in mind and PLAN on them for the future. State employees still working have the opportunity to adjust their retirment plans and dates…maybe deciding to work longer. Further, I don’t know what pay you are talking about. The public employees have notoriously received less pay than their prive sector counter parts until just recently due to the economy and the further damage this president has done. Its been the bane of jokes on public employees for decades. Until just recently many, many private sector employers provided pensions to their employees. The fact that the governor doesn’t want to raise taxes is admirable….especially for his reelection chances. But he will not be able to default on the states obligations that need a tax increase just to further his political career. The only “short-shrift” here is on part of the governor.

          • Posted by Tough Love on June 22, 2011 at 6:11 pm

            Toms, Lets correct a few of your statements:

            (1) Quoting …”The only reason the pension plans are in this mess is that NJ government hasn’t made their matching deposits for nearly 17 years…”

            Even IF the state had made their payments, it would still be more than 30% underfunded due to poor stock market performance over the past decade.

            (2) Quoting …”Tell me there are no lazy people collecting state money in this state. ”

            There certainly are …. at least half of them are NJ Civil Servants. Ever watch a crew of 4 fill a pothole with 2 just watching ?

            (3) Quoting …”To alter future benefits makes sense, but when you contract to retire you do so with your total benefits in mind and PLAN on them for the future.”

            Your first sentence is correct, and is a MUST Do (by a 50+% reduction) is NJ’s Plans are to have a chance. Not sure if your 2-nd sentence is trying to backtrack.

            (3) Quoting … “The public employees have notoriously received less pay than their prive sector counter parts until just recently”

            No, their “cash pay” alone has been higher for at least the past 10 years.

            AND P.S., Gov. Christie is the best thing that’s happened to NJ in a LONG
            LONG time. Even those he isn’t yet doing “enough”, he’s opened the taxpayers’ eyes to their financial rape by NJ’s Public Sector Unions and workers.

  8. Posted by TomS on June 22, 2011 at 7:40 pm

    Tough Love, there’s no hope for you. Just writing things doesn’t make them true my friend. Obviously you are in a crappy job or no job at all, and I feel sorry for you if that’s the case. Poor, poor Tough Love. I’m not backtracking on anything. Sounds like you’re backtracking when you went from 10-20 years to 10 on the supposed HIGH pay of public servants. If you’re talking about a 25 year public servant making more than you, well so what. We all make choices in life and that includes our career path. Sometimes that results in the lack of one … am I right?!

    My personal problem is with changing the benefits to current retirees.
    I’m retired and counted on the COLA when I decided to do so. During my career, my pension contributions were raised when the fund had low performance and nobody complained. The problem is that NOW the private sector looks at any tax increase as paying public sector benefits. There is money to do that, but not to also pay all the states discretionary entitlements. Don’t hear you complaining about that coming out of your pocket. Or is it that you are a recipient. That’s where the 40$ Billion went from our fund. $40 billion that never got to benefit from 17 (not 2 or 3) years of investment performance.

    Changing existing retirees benefits is against the New Jersey Statutes:

    Upon attainment of five years of service credit member acquires non-forfeitable right to receive pension benefits (New Jersey Statutes 43:3C-9.5)

    Nobody likes seeing anyone get a free ride, but it sounds like you are against seeing ANYONE get a better ride than you, no matter what. Hope you get everything you’re entitled to in life Tough Love, but crying won’t do it. I guess it would be easier to agree to disagree, although I don’t think that will be good enough for you. Good Luck wit all dat anger, envy, bias or whatever else it is.


  9. Posted by Tough Love on June 22, 2011 at 7:48 pm

    Quoting …”My personal problem is with changing the benefits to current retirees.
    I’m retired and counted on the COLA when I decided to do so”

    So now we see the self interest …

    Still, we should be fair. So, I suggest only the portion of YOUR pension equal to the average Social Security payment (less than $20K annually) should be COLA adjusted (just as SS benefits are), but any additional pension over the $20K should not.

    Or is it that you’re just “special” and deserving of a better deal than the taxpayers whose contributions (and the investment earnings thereon) paid for 80-90% of your pension ?


  10. Posted by TomS on June 23, 2011 at 10:32 am

    Knew you couldn’t let it go Tough Love. You must never get the chance to talk at home or live alone and have NO friends. What you are is a bias, jealous crybaby who is going to be very disappointed in the future with your poor choices in life. You need to knock down people who chose “wisely” in order to feel good about yourself and your bad decisions. You talk about my “self-interest”. I never tried to hide it,(why would I – It’s a FORUM) but are you telling me you are writing here for the betterment of “Your Masses” and not your obviously pathetic personal situation? If you DO have a job (Big IF) please keep working so you can continue paying your 90% of my pension. And I guess I’ll keep paying my high taxes to all of the entitlement programs you are surely taking advantage of and most likely abusing. I think you need help with your anger….and oh…btw…someone’s at the drive-through. Wouldn’t want you to get fired. My membership fees to the country club are due.


    • Posted by Tough Love on June 23, 2011 at 11:22 am

      I suppose I could respond with …”Knew you couldn’t let it go TomS”………

      By-the-way ….. you didn’t “choose wisely”(with to the huge paydays, not the career). Our “elected representatives sold out their constituents (all the taxpayers) for personal/professional gain. But while they feather their political career, stroke their ego, and skim off a little cream, it’s since Public Sector workers who unnecessary and unfairly walk off with OUR money. Granted it’s not any individual Civil Servants “fault” that this good fortune (perhaps … if it does not unravel) fell in their lap, but that’s where must go to reclaim our money.


  11. Posted by TomS on June 23, 2011 at 5:03 pm

    I wonder what you would do if the manager at the KFC where you work comes to you on payday and says he’s not going to pay you what he had agreed to because he wants to give the money to the drunk, homeless guy down the corner who is breaking his heart with a sob story. Or better yet, that he is a little short after having spent too much money when he was on vacation. I wonder what you would tell your family when you don’t come home with even the minimum wage you probably work for Tough Love. (Your HUGE PAYDAY) There is a problem with your thinking when you feel it’s okay for the government to breach on a contract they made 30 years ago. Don’t be fooled….most retirees are making the 30K$ and some will never get Social Security. Sour Grapes, that’s all you are. Have fun continuing to be the loser you have apparently always been. Since there is nobody else even commenting on this site anymore, I’ll leave you to it. Then you can write, read and re-read again everything you type. You might even want to get another profile so you can agree with your uneducated, uninformed, cry-baby ideas of fairness. Guess mommy never loved you, ergo TOUGH LOVE! ta-ta


    • Posted by Tough Love on June 23, 2011 at 9:35 pm

      The problem with YOUR thinking is that you still believe Civil Servants are deserving of a better deal than the taxpayers who pay their way.

      For example suppose my company said … “sorry, but for FUTURE service were going to lower the formula accruals for your pension because it is no longer affordable” Well, I likely be pisse*off, but under ERISA they can do so….. and MANY MANY companies HAVE done so

      Yet under Gov’t Plans and per the NJ OLS opinion, the formula itself is locked-in even for FUTURE service.

      Tell me WHY that’s fair. Why are you deserving of more and better pensions and benefits (when your cash pay alone is equal or higher as well)…. with OUR contributions and interest paying for 80-90% of YOUR pension?

      By-the-way, YOU seem to be spending quite a bit of time commenting here …. because you know what I’m saying is the truth … and you’re running scared.


  12. […] will leave the technical analysis to the Pension Expert John Bury, Grading Pension Reform in New Jersey, but I’d like to share a few thoughts to explain how the liberal Republicans have raised debt […]


  13. Posted by Anonymous on March 30, 2012 at 10:18 am

    Where do you get all this experience to be all knowing and so critical of public employees? What is your background? Where does your income come from?
    As far as your comment about taxpayers not being on the hook for phony promises?…
    Like it or not, yeah, you are on the hook. Time will tell, but I believe if the promises made are not kept, the necessary increase in taxes to pay for the past politicians thefts will, by far, be the least of your worries.


  14. Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something.
    I think that you could do with some pics to drive the message home a little bit, but instead of that, this is great blog.
    A fantastic read. I will definitely be back.


  15. […] did not win a landslide victory in New Jersey because he successfully overhauled public pensions (he didn’t).  His substantial victory came from being on every news/late night/radio/infomercial spot his […]


  16. […] interest is not the plan itself, which seems to be modeled on what New Jersey tried in 2011 (cut COLAs, lower benefits for new hires, guarantee that contributions will be made), but aspects […]


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