Frustrating Pension Reform in New Jersey

The New Jersey pension system is “teetering on the brink of collapse” according to State Senate President Stephen Sweeney in arguing for a bill that will do absolutely NOTHING to forestall that collapse as admitted in the Fiscal Impact section at the end of that bill summary:

“According to testimony provided by the Department of the Treasury to the Senate Budget and Appropriations Committee, increases in State and local employee contributions to the various State and local pension funds, in accordance with the provisions of the bill, will be $3.9 billion in the first ten years and $120 billion over 30 years….The Administration did not provide the committee with any information about the underlying assumptions for its fiscal estimate.”

I figured the additional annual contribution employees would be making would come to about $250 million and with creative use of compounding $3.9 billion is possible over 10 years*.  Since about $8 billion is being paid out of the fund annually these days and a spate of retirements is certain to come those additional contributions will allow for a few more weeks of payments but will not shave a day off of the drop-dead date of the plan.  That’s because the additional money will come from the employees themselves and simply raise the amount of remaining assets that will have to be returned to all employees when that’s all that’s left in the plan.  That is, if the plan would have had $40 billion dollars in 2014 without any changes (totaling what the participants had put into the plan and not yet received back) then those additional contributions might raise the fund value to $41.5 billion but that would still amount to the total returnable contributions.

Who are these legislators trying to fool?  Don’t they understand the numbers?  How can they believe there is a crisis and “failure to act is not an option” and then fail to act?   Are they complete idiots?

As I write this I have the debate over the bill being held in the State Senate playing in the background on New Jersey Network.  The more I listen, the clearer the answers:  Taxpayers; No; Hypocrisy; Yes.




* $120 billion over 30 years is too silly of a number to give any credence to unless Weimar-style hyperinflation is assumed along the way.

38 responses to this post.

  1. Posted by Javagold on June 21, 2011 at 1:23 am

    what else would you expect for a HIGH SCHOOL DROPOUT !


  2. Posted by sinbad on June 21, 2011 at 8:28 am

    “Who are these legislators trying to fool?”

    The answer is YOU and ME! This is not & never has been about taxpayer dollars. That is the bone being thrown to encourage NJ workers to participate in the “US & THEM” debate. It is a false argument. NO ONE’S taxes are going to be reduced by this…and we ALL pay taxes. This is about attacking public servants & their unions, established by law. It is happening in states across the country. It is political, NOT economical. As soon as there is a tiered system for ‘new’ employees, membership in unions in the future decreases. As soon as unions suffer a massive defeat statewide, membership (it is hoped) will decrease.

    But THEY are wrong…when all hard-working citizens of NJ are reduced to less than $20/hr with minimal health care plans for their families, no secure future, personal & public pensions invested in insecure gambling schemes…when the middle-class is gone…who will support our state’s economy then? Can we all really be ‘entrepreneurs’ or small business owners?

    When the people of NJ finally wake up & realize no one has the $$ to buy new appliances, new cars, new homes… The unions will grow as never before. (If you are in a private sector job that does not afford you what you need, you should join a union!). There IS strength in numbers. The current ‘divide & conquer’ political tactics will be revealed. And ALL workers in NJ will unite in their struggle for fair wages, benefits, & a secure future for themselves and their families.


    • Posted by Tough Love on June 21, 2011 at 1:34 pm

      The trouble is, that you and your Public Sector Union do NOT support …”all hard-working citizens of NJ” … or care about them. You and your Union only care about the 10-15% of NJ workers in YOUR Public Sector Unions and to hell with the OTHER 85% of middle class taxpayers who don’t even get 1/2 of what YOU do while OUR pensions contribution (and the interest earned thereon) pay for 85-90% of YOUR pensions.

      Sorry, buddy …. but that does NOT work for us.


      • Posted by bpaterson on June 22, 2011 at 3:13 pm

        the public sector unions forget one thing-they are a union inside a monopoly. In essence all labor demands create costs and they are simply passed onto the taxpayers as taxes. The taxpayers have to pay the taxes or lose their houses. With taxes comes endless cash flow…..and special interest votes as the politicans full know and who negotiate with the public sector unions.

        Looking at the unions in the private sector: they too can demand raises and benefits for their rank and file. however, these labor costs can only be passed on to the consumer of whatever product the union company is producing. If that product gets too expensive from the high labor costs, the consumer simply buys a competitors product that is less expensive. After all the private sector is not a monopoly, but has much competition from similar products. Management of the private corporations feel the cash flow restraints and negotiate with the unions who also are aware that cash is not endless.

        Bottom line, the public sector unions are not friends of the private sector and the taxpayers are aware of this since they are the ones paying for the monopolistic system and its accompanying high unionized labor costs. The taxpayers are not happy and its safe to assume they do not support the public sector unions.


  3. Is it actually a law that if the pension fund balance ever gets to the point where it consists only of the employees’ own contributions then the remaining balance must be returned to the employees? This seems to be what you are implying. So is this true, it is an actual law and this is absolutely what would happen? Or are you making a more moral argument, i.e. that it would be unseemly to not return the employees’ own contributions (although this wouldn’t technically be required legally)?


    • It’s not a real enforceable law in New Jersey (though what is?). It’s part of a plan termination scenario where employee contributions absolutely must be returned.


      • Posted by Tough Love on June 21, 2011 at 1:38 pm

        John, I understand where you are coming from, but when push comes to shove, there is no way they are going to turn off the spigot for those already retired and collecting payments. They’ll continue to kick the can down the road .. and promise they’ll fix it for current workers, somehow.


        • You’re probably right but it’s primarily due to the ignorance and malleability of the taxpayer and public worker. The NJ plan could well continue as a true Ponzi scheme, like Social Security. I’d like to think that the workers paying into it would see it for what it is but I’m not at all heartened by the reception this latest reform has gotten. Sweeney and his cohorts keep running around saying the pension problem is ‘solved’ when their own numbers only show a gain of $3.9 billion over 10 years. Yet I’ve seen nobody calling him out on it.


          • Posted by Tough Love on June 21, 2011 at 1:54 pm

            The Healthcare change was BIG, and the COLA elimination for all was BIG (as long as it’s permanent). Now we need to make 50+% reductions in the rate of pension accrual for current workers.


          • Posted by muni-man on June 21, 2011 at 6:47 pm

            And eliminate ALL lump-sum sick leave and vacation payouts. The healthcare and pension
            contribution hikes + (un)COLA + salary caps are fairly substantial though and should give towns some budget relief, provided they don’t find other ways to piss it away, mainly on more almost guaranteed-to-fail educational initiatives.


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

            Muni-man/John, Even with the Current bill, and EVEN if Future accruals could be reduced 50+%, it STILL leaves the us with addressing the unfunded liability for pension benefits already accrued.

            This is a REAL tough issue to address. Short of a miracle run-up in Plan assets, I’d guess it would take decades of an additional 10% of pay contributions from BOTH employees and taxpayers to work this off. As a non-employee taxpayer who WOULD like to stay in NJ, that’s a real problem. While I’d REALLY not like to pay my taxpayer 10% (since we all know these Plans were too rich from the get-go), I certainly will NOT pay it without the employee paying an increased 10% of pay as well ….and the chances of THAT are ZERO.

            So where do we go from here … pay-as-you-go (with the annually increasing pain), haircut/default on the Plan benefits, bankruptcy ?

            Do ANY real options exist to address the unfunded liability?


  4. Posted by 4everunion on June 21, 2011 at 9:12 pm

    Read and weep haters:

    “Both the non-partisan Office of Legislative Services (OLS) and the state Attorney General’s Office issued strongly worded opinions during the summer of 2006 warning the bipartisan Joint Legislative Committee on Public Employee Benefits Reform that the New Jersey legislature had established a clear record of legislative intent that previously approved pension benefits should not be reduced.

    During negotiations with Republican Governor Christine Todd Whitman’s administration on a controversial pension refinancing plan in 1997, the state’s public employee unions won a key concession by persuading Whitman and the GOP-controlled legislature to agree to a new law that “confers on a public employee a non-forfeitable right to pension benefits established by law after the employee has served for five years.”

    Through that 1997 law, the New Jersey legislature made it clear that it intended to establish pension benefits as contractual rights. Thus, the provisions in the United States and New Jersey Constitutions prohibiting the impairment of a contract would prevent any reduction in pension benefits for retirees or current employees vested in the pension system, OLS counsel Peter Kelly ruled.”

    So it sounds like the political scum will be done in by the stupidity of their own scammers who made these deals legally binding years ago. Changes in pensions/bennies for those with less than 5 yrs and new hires….absolutely can be done….as far as the others, you took your chances now pays them the money.

    Where’s it gonna come from, who knows….gas tax, raise income & prop taxes, CUT WELFARE and LEGAL AID…heck, lipo Christie’s extra fat and sell it for soap for all I care but cut me my check in full and on time as bound to.


    • So you’re counting on the rule of law to prevail in New Jersey? Good luck with that.


      • Posted by 4everunion on June 21, 2011 at 9:36 pm

        Perhaps not in NJ…..although I imagine that the judges might be more open to the union’s side since they too are having their pensions affected…. but if not given a fair trial then go as far as the US Supreme Court.

        It’s one thing to have the legislation signed, but putting into effect could take many years and court challenges before all is said and done. Look at Colorado, South Dakota, etc….their cases (re:COLA elimination) are still not decided and they’ve been in court for 2 years now with an ANTICIPATED hearing date in FEB 2012!!!


        • Posted by bpaterson on June 22, 2011 at 3:34 pm

          if these finanical obligations are part of the state then it would appear the state can put a one time lien on every house, building and company inside this state. Prorate it according to present day assessment much like property taxes. As the buildings are sold or transferred through inheritance the lein becomes satisfied.


    • Posted by Tough Love on June 21, 2011 at 9:47 pm

      I have always found it interesting that the NJ OLS (whose employees are members of, and benefit from participation in the same Plans upon which they were asked to opine), concluded as you stated.

      Surprise surprise….. a conflicted party, wouldn’t you say ?

      By-the-way …. at most, a 25% chance you’ll get all you were promised …. and that’s if you’re a LONG term employee.


      • Posted by 4everunion on June 21, 2011 at 11:39 pm

        Care to post the methodology you used to arrive at that 25% figure???

        Or are you just grabbing numbers and figures out of thin air and using them to try to prove a point……hey, wait a minute…..sounds like you’re with the NJ legislature and are using their technique!


        • Posted by Tough Love on June 22, 2011 at 12:02 am

          I figure (yes, my own calcs) that it going to take about an additional 20% of pay for decades to keep the NJ Plans afloat (although some are in less trouble than others).

          I cannot see the taxpayers or the employees even remotely agreeing to 1/4 of this let alone all of it. In fact the 1/7, 2/7, … grade-in of taxpayer contributions directly adds $15 Billion to existing unfunded liabilities.

          A HUGE battle will begin in a few years as current workers see their contributions running out the door to make retiree payments. At that point retirees and current workers will turn on one another. ………. with cuts to BOTH groups as a compromise. We’re not talking 2030, we’re talking 5-7 years from now.

          But you’re correct, the 25% is little more than my estimate that a miracle (eg., a 100%-200% rise in stock market over this period) could change the inevitable.

          I suggest you save outside your gov’t pension….. a “plan b”.


          • Posted by muni-man on June 22, 2011 at 8:15 am

            If the $’s aren’t there, the plans will fold. Economics, not state laws or court rulings, are gonna be the final determinant of what happens. There’s no way these ‘obligations’ will ever be paid in full or anything close to it if the plans fail. As you opined, actives will begin turning on retirees [quickly forgetting the union-strong crap], but most importantly there’s simply no way less than 15% of the workforce is gonna be able to drain the other 85% of the workforce for these untenable payouts indefinitely. Pols know this, courts know this and can bloviate all they want, but in the final analysis they will have no way to force TP’s to fund these payouts. They might try, but they’ll fail – TP’s will simply refuse to pay.


          • Posted by 4everunion on June 22, 2011 at 11:40 am


            Click to access jcpe_resources_AG08242006.pdf

            The state is going to have a hard time defending itself in court when their own AG specifically pointed out that such changes would not pass legal muster


  5. Posted by Javagold on June 22, 2011 at 1:49 am

    i sure wouldnt want to be a 12-15 year public on the pension pyramid totem pole…….after they finally realize they can not force or bully the private sector/taxpayer any more, they will go after where their money is going out the door to (most likey in florida and carolinas)…..should be fun to watch


  6. Posted by muni-man on June 22, 2011 at 12:03 pm

    A much better question to ask is “Will it pass muster with TP’s?” The answer is NO!! Followed by, try collecting if you can!!


    • Posted by 4everunion on June 22, 2011 at 4:41 pm

      Wishful thinking on your part but just like we have money taken out of our paychecks against our wills for unemployment insurance, disability, etc. the state can go ahead and charge every “TP” a mandatory “pension insurance” fee.

      Don’t know if you read the whole thing but if you did and half a brain you’d see that most of what the current crop of political scum is crowing about will be overturned in court, if not NJ then US Supreme.

      So, instead of coming up with a more acceptable plan (and there were some out there, esp. by police and fire) there will be much time and taxpayer’s dollars spent on court challenges.

      Be sure to thank your legislators!


      • Posted by muni-man on June 22, 2011 at 4:53 pm

        I’m thanking them already. The bill will be passed, you’ll be forced to cough up a lot more dough to help keep my taxes more stable, and your pensions are gonna be history if you don’t accept massive benefit reductions before this decade’s out (see next blog article).


      • Posted by Tough Love on June 22, 2011 at 5:54 pm

        4everunino, It sounds like you are a CURRENT worker, not yet retired.

        Boy, are you gonna get screwed.


        • Posted by 4everunion on June 22, 2011 at 8:34 pm

          Nope……I’m fortunate enough to have 28 yrs in the system.

          My only real concern for myself is the COLA thing but I am equally concerned for my fellow workers being screwed over and not getting what they were guaranteed


          • Posted by Tough Love on June 22, 2011 at 8:41 pm

            Ah yes …”guarantees” for Civil Servants should be kept at ALL costs …. no matter that those who pay for your pension don’t get them.

            I hope you’ve saved outside your pension. You’re gonna need it.

            Greed has consequences.

            Oh yeah, we noticed earlier your concern for working brethren with less service. You seem more than willing to reduce pension accruals for future service. How nice of you to throw them “under the bus” as you approach retirement.


          • Posted by muni-man on June 22, 2011 at 9:21 pm

            Publics have lived in an ’employment cocoon’ all their lives, sheltered from any semblance of economic reality. That’s now changing with a vengeance. Economic forces are gonna hammer them brutally in the years ahead. There are gonna be a lot less publics on payrolls, with a lot less benefits for those who remain. Retirees won’t escape unscathed either.


          • Posted by 4everunion on June 23, 2011 at 1:31 am

            Whoa there toughlove…

            My preference is for this not to screw any public worker.

            I’m not willing to throw anyone under the bus but it is what it is…..My point being that as per the language of the statute and legal decisions that new hires and those with less than 5 years are not “protected”. Therefore, changes can be applied to them no matter what I or anyone else feels or can push for.

            Greed??? What greed???..these are stipulations and bargaining issues that have been AGREED TO over many years…..maybe not by you but by those legislators elected by the voting public through negotiated contracts.

            If I negotiated a contract to buy your house years ago and now came to you saying I feel you got too much for it and now think you should renegotiate the deal and sell it to me for a lower price what would you say???…..Yeah I thought so!!!!


          • Posted by Tough Love on June 23, 2011 at 1:57 am

            4everunion, If we (at any time) negotiated a deal, we would be “negotiating” at a “bargaining table” with each other aggressively acting to protect our own interests … as it should be.

            When Public Sector Unions “negotiate”, there is nobody at that “bargaining table” truely representing taxpayer interests …. because (unfortunately) your Union’s campaign contributions and election support( and threats) have corrupted the process…. along with (again unfortunately) elected representative all too willing to accept your Union’s money and support for favorable votes on pay, pensions, and benefits.

            So we (the taxpayers) are gonna fix that … by reneging on the majority of those phony promises.


        • Posted by 4everunion on June 23, 2011 at 2:22 am

          @ Tough Love

          Don’t hate the player, hate the game…..Most of what you say might be on point but still, these were things agreed to by duly elected representatives of the state and local gov’t bodies.

          Whether you feel they were “truely (sic) representing taxpayers interests” is not a legal defense….it’s just your anti-union sentiments and jealously coming to the surface. Also, if true, your issue is with the “elected representatives” whom you obviously disagree with but who let it happen and pushed it through.

          I understand you’re not happy with it and hate that “elected representative all too willing to accept your Union’s money and support for favorable votes on pay, pensions, and benefits.” happened but it did, was signed into law as a “non-forfeitable right” and guaranteed to all public workers with more than 5 years of service.

          So, you can try to renege all you want but when the decision comes down that these payments have to be made, you and you TP friends have no real power to stop it……just like the weather, everyone complains about it but no one can do anything to change it to how they wish it would be.


          • Posted by Tough Love on June 23, 2011 at 2:44 am

            You love citing the laws (“non-forfeitable rights” and such) that you believe will protect those phony promises. Laws mean nothing when the money runs out … and that’s projected to be in 6-7 years.

            If paying for this largess is ever pressed upon taxpayers, those businesses and citizens WITH the means to pay, won’t, they’ll pick up shop and move out of State ….exacerbating the death spiral.


          • Posted by 4everunion on June 23, 2011 at 12:43 pm

            “they’ll pick up shop and move out of State ….exacerbating the death spiral.”

            Ahh yes…..the ultimate empty threat that has been thrown around. I’m sure you have a grand vision of a procession of moving trucks and families with overloaded cars and packs on their backs fleeing the state like a pilgrimage to Mecca but it won’t happen.

            Sure, some will move but the majority will stay for various reasons such as staying near family/friends/school, inability to sell home (how will they find a buyer since, under your theory. everyone will move out and no one will come to NJ?) , work & job market/salaries, etc.


          • Posted by Tough Love on June 23, 2011 at 12:57 pm

            You misunderstand. This consequence will be a shortening of the time to, and an increase the amount of Public Sector pension and benefit reductions … certainly for current workers and likely for retirees as well. Taxes will cease being the balancing item.


          • Posted by 4everunion on June 23, 2011 at 4:25 pm

            No, I don’t misunderstand…..the major thing we don’t agree on is the “current workers (more than 5 years) and retirees” part.

            You feel it’s doable for those employees but have not pointed to any law or legal decision/opinion that backs up your argument.

            As I have said, such changes will happen for new hires and non vested employees…..the legal fight will come about regarding current workers and especially retirees. I have referred to legal opinions and “citing the laws (“non-forfeitable rights” and such)” that support my contention but you, so far, haven’t referred to or posted anything supporting yours except for “you’ll see” rantings and carrying yourself as the voice of the taxpayers.


          • Posted by Javagold on June 23, 2011 at 6:27 pm

            you keep on believing whatever you want 4everuinon……..saying it over and over will not change reality


          • Posted by Tough Love on June 23, 2011 at 9:22 pm

            4everunion, I make it simple for you to understand. The laws notwithstanding, it’s the math … it doesn’t work.

            Either there will big reductions on the benefit side or a complete Plan collapse with no funds to pay retirees in 6-7 years.


  7. Posted by Javagold on June 23, 2011 at 11:46 am

    and the public pigs then take their pensions out of state……..TAX THEM @ 99% rate


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