New Jersey COLA War: (2) Why More Briefs

Judge Reisner wanted to know more in the New Jersey COLA case, primarily about how the Internal Revenue Code interacts with public pension law in New Jersey:

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Another month of delay for what is essentially a non-issue as I will try to explain:

Public pension plans are not subject to ERISA but there are provisions of the Internal Revenue Code (IRC) that these plans need to adhere to so as to be ‘qualified’ in the eyes of the IRS which basically means that the contributions, if any, deposited into the plans would not be taxable to the participants in the year they are made.  Not all IRC provisions apply to public plans with the most obvious exception being the funding requirements.  Another exception is the anti-cutback rules. Governmental plans and plans sponsored by churches that do not elect to be covered by ERISA (“non-electing church plans”) are not subject to these rules.

Since Berg v. Christie is all about cutbacks perhaps the judges wanted this point cleared up.  Either that or they’re looking to stall any decision on COLA restoration until after the June 30, 2014 valuation date to give the state an extra year of calculated under-contributions.

27 responses to this post.

  1. Posted by Anonymous on January 29, 2014 at 6:16 pm

    Hey John, isnt it all decided ahead of time what will be done in NJ especially in this case.? no matter what it looks like to he public, this is all discussed and decided behind closed doors, right?

    Reply

    • Posted by Tough Love on January 29, 2014 at 6:21 pm

      John, Add to that question … is THIS judge tenured and with a conflict-of-interest in that he will be ruling to reinstate (or not reinstate) his own COLA suspension?

      Reply

      • It’s a 3 judge appellate panel so I assume they are all tenured.

        I don’t see judges as being in the same league as Port Authority appointees to whom you can send cryptic instructions on how to act.

        If anything, these judges are ruling on their own COLAs as was the Assistant Prosecutor who didn’t seem that gung ho with his arguments.

        Reply

        • Posted by Tough Love on January 29, 2014 at 7:08 pm

          Looks like a short-term Taxpayer screwing is afoot, but who knows, reinstating the COLA will hasten the day-of-reckoning, and hopefully a REAL cut to their pensions….far greater than just the COLAs.

          Once the HUGE (and annually growing) pay-as-you-costs become apparent, perhaps Taxpayers will muster up sufficient demand to freeze all of these pension Plans for FUTURE service.

          Reply

          • Posted by truthnolie on January 30, 2014 at 3:08 pm

            Shut up and get ready to pay more when your taxes go up to benefit us conscientious & hard working public employees.

          • Posted by Tough Love on January 30, 2014 at 5:58 pm

            Get ready to be outsourced… as that will be the only effective option remaining.

            And it freezes ALL further growth in your pension and benefits for good.

  2. Posted by Tough Love on January 29, 2014 at 6:18 pm

    Quoting ….”Governmental plans and plans sponsored by churches that do not elect to be covered by ERISA (“non-electing church plans”) are not subject to these rules. ”

    Off topic but worth mentioning for readers working for non-profit hospitals and similar employers ………….. BEWARE….

    Some such employers with the most marginal of Church/religious affiliations have converted from ERISA-covered Plans to non-ERISA-covered “Church” Plans… and often WITHOUT telling their employees. It’s typically done when the Plan is severely underfunded and having no way to fund the Plan per ERISA requirements. When such Plans go under… as some have done… the employees have no ERISA or PBGC insurance protection of their past service pension accruals.

    Reply

  3. Why should the taxpayer fund private DB plans via PBGC? How many times did the Congress over the past 40 years make a special appropriation to the PBGC? If you want to can public DB plans because they are unfair to the taxpayer the same logic applies to private DB plans.

    Reply

    • Posted by Tough Love on January 29, 2014 at 7:45 pm

      I knew someone would raise that point ….. glad you did.

      First, while the PBGC is currently under water, so far, no Taxpayer money has be used to fund the PBGC. It is funded via premiums charged DB Plan sponsors (with the premium recently raised).

      Second, when ERISA was created, it was the UNIONS who didn’t want to be covered by ERISA…..perhaps (and correctly) they realized that the “generosity” of their Pension Plans would be severely restricted if they had to be PROPERLY funded every year with actual CASH (per Private Sector Plan requirements)…. in addition to their being less cash available for raises. And of course they believed that with State & Federal Constitutional, Statutory, Contract Law, and Case Law protections/guarantees, that they would always get paid in full an on time not matter how absurdly generous or underfunded their Plans might become …. hitting up the Taxpayers for the shortfall.

      Third………the PBGC insurance is actually quite limited, the annual maximums being $53,318, $38,557,and $26,693 at ages 65, 60 and 55 in the year of Plan Termination. I’m quite certain the Taxpayers would be MORE THAN WILLING to afford you such coverage in exchange for a reduction in YOUR your pensions to a level no greater than that of comparable Private Sector worker retiring at the SAME age, with the SAME years of service, and the SAME pay. And P.S., you could expect a pension reduction of from 50%-75%. Interested ?

      Aren’t you glad you asked?

      Reply

      • You’re just a regular wise guy—you think you are the brightest bulb in the room.

        You are wrong when you say the Congress never made a special appropriation to the PBGC. The drain on the Fund outpaced the premiums paid by the employers. Sounds like underfunding to me—-far from being the brightest bulb in the room.

        Reply

        • Posted by Tough Love on January 29, 2014 at 9:21 pm

          No Joel. You went into your question with either extreme ignorance or an attitude …. and I responded as I saw fit.

          Those who think they will accomplish ANYTHING of material value by pussy-footing (or “negotiating”) with the insatiably greedy and pig-headed Public Sector Unions/workers are FOOLS.

          You know, at one point, I was SO convinced that Vice President Chaney (with his hawkish ways) was an arrogant SOB, but over time I realized that he was dealing with TERRORISTS who had crashed multiple airplanes into buildings with thousands of lives lost, and that dealing with such necessitates an in-kind response.

          Well….Public Sector Unions (and some, but not all workers) are modern day financial terrorists, as bad or worse than any on “Wall Street”.

          And I don’t need to be the “brightest bulb in the room”, only to educate (with correct information, and as widely as I can) as to the financial “mugging” perpetrated by the insatiably greedy Public Sector Unions/workers on Private Sector Taxpayers for the last 20 years …. sufficiently so that they do something to change it.
          ___________

          And earth to joelfrank … PBGC “underfunding” is not synonymous with Congress making a “special appropriation” (YOUR words).

          Reply

          • “First, while the PBGC is currently under water, so far, no Taxpayer money has be used to fund the PBGC. It is funded via premiums charged DB Plan sponsors (with the premium recently raised).” Wrong—Congress makes appropriations from time to time too.

            So we have Erisa plans that have been underfunded for years because the business plan was wrong and as a result the corporation is heading toward bankruptcy. So we go to a quasi government Guaranty Fund to make sure the DB is paid. And when the Guaranty Fund is ‘under water”/under funded and the premiums are not enough to pay the promised benefit the Congress chips in. Sounds like corporate welfare to me.

            “Under water” = underfunded. The Congressional appropriation to the Guaranty Fund is made to limit Corporate premium increases. Those corporate campaign contributions are made for a reason. Sounds like public unionism only with a different name on the campaign contribution check.

            Additionally, if not for the tax write-off of employer contributions to both private DB and DC plans there would be no private pension system to begin with. More corporate welfare. So who makes up the Treasury’s shortfall? Yes, all taxpayers–public employees and private employees. We are in one boat together— a fact that you refuse to see.

          • Posted by Tough Love on January 30, 2014 at 3:47 am

            joelfrank, as of 2012 the PBGC underfunding was $34 Billion vs underfunding estimates of from $2 Trillion $4 Trillion for Public Sector Pension Plans … on top of which should be added similar amounts for (almost zero funded) Public Sector Retiree healthcare promises.

            Your bringing these together without noting that the potential costs to Taxpayers from underfunded Public Sector Pensions & benefits are orders of magnitude greater (than any PBGC debts that may develop) shows how either uninformed you are,or simply a charlatan protecting his over-stuffed turf via distortion, omission, and lies.

            And we’ll be in the “same boat together” only when the pensions of CURRENT Public Sector workers are REDUCED to a level no greater than the pensions of Private Sector pension workers with the SAME pay, age at retirement, and years of service.

            RIGHT NOW Public Sector pensions are always AT LEAST 2x greater in value at retirement, MOST OFTEN 3x-4x greater, and for safety workers SOMETIMES 4x-6x greater.

            THAT needs to end … PRONTO.

      • Posted by truthnolie on January 30, 2014 at 3:09 pm

        GREEN with envy I see…….jealous much???

        Reply

      • Posted by ModernDiogenes on December 2, 2015 at 3:56 am

        You do realize that the pension benefits are not ‘benefits” at all, but are in fact contractually obligated deferred compensation for work product already delivered by the plaintiffs.
        Which goes specifically to the heart of the argument, that failure to provide COLA is a breach of contract.

        Reply

  4. An appelate court decision should go to the Supremes, no?

    Reply

    • John,

      Can you tell us the time table for the COLA decision? Will this be an appellate court decision?

      Thanks,

      Joel

      Reply

      • It’s just a guess based on observations so far (and maybe someone with a legal background can correct me) but I see this court as already having decided and they want to know more about the the Internal Revenue Code (IRC) issue before finalizing. I see a decision soon after the briefs are filed (ides of March?). My possibilities:

        A) They agree with Hurd’s ruling about the COLA elimination but want to make sure there is nothing in the IRC that protects COLAs and precludes public plans from taking them away (there isn’t); or

        B) the IRC question was a ruse to hear arguments and then get a month more to think about it since their decision (overturning Hurd and restoring COLAs) will have massive consequences – essentially bankrupting the plan and by extension the state now (instead of, say, 5 years from now).

        I lean toward B since the state seems to have needed to come up with something better than that debt limitation clause argument as a reasonable justification and I still can’t comprehend their reasoning in what they came up with: that “reading (a) and (b) together” stuff.

        Reply

  5. Posted by MJ on January 29, 2014 at 8:15 pm

    Is there anybody left to hit up for higher taxes? Public and privates are typically making less money due to increased pension and healthcare contributions. How many private taxpayers can be left in NJ? Businesses are leaving if they can and home sales are at at standstill. If they get the COLAS fine, if they don’t all the better. Big show for nothing. It probably is all decided already and the actors have to say their lines. Its the little guy public who be hit not the big wigs.

    Reply

  6. Posted by Anonymous on January 29, 2014 at 10:08 pm

    Wow does it really look like the COLA will be restored in 2014? I guess they will have to come up another temporary fix, or not

    Reply

  7. Posted by Tough Love on January 29, 2014 at 10:38 pm

    For those who continue to believe that America’s Public Sector workers “deserve” the incredibly generous, young-age, short-service pension Plans granted them …….everywhere, the following is a quote from an article in the Wall Street Journal discussing a proposed change in Germany’s Public Sector Pension Plans:

    “Under the proposed package, employees who have contributed to Germany’s social-security system for 45 years will be able to retire on a full pension at the age of 63”.

    Did you catch that… 45 years in order to get a full pension !

    America will become “Greece” (or Detroit) if we don’t materially REDUCE these grossly excessive Public Sector pension promises very soon.

    Reply

  8. Posted by Eric on January 30, 2014 at 9:26 am

    It is becoming increasingly difficult to ascertain the true state of the financial condition of the NJ pension system. First, we were told that the funds would not last beyond the year 2013. We know that 2013 came and went in an uneventful manner. Next, CC told the world that the “publics” would be sending him “Thank You” notes for having saved their pension. We were then told that the mission was not yet accomplished.
    Now, the Common Sense Institute of NJ released a study indicating that the NJ pension funds are only solvent for approximately 2 more decades, which of course means 20 years, and this is being reported as a dire situation.
    I guess it is true that statistics can be manipulated to any given result for any given audience.
    Eric

    Reply

    • Posted by Tough Love on January 30, 2014 at 11:49 am

      Eric, A basic analysis is not really difficult. You have a pool of assets today (Market, not “actuarial” value) that willI increase with (a) employee contributions, (b)Taxpayer contributions, and (c)investment income (+ or -), and you have payouts to retirees.

      A spreasheet projection with such information, (along with an understanding of Plan demographics …. open or closed Plan population?, older or younger age actives?, average years to retirement, etc) will show if/when the Plan assets will run out.

      Part of the difference in end dates we see depends on the definition of “running out of assets”. Some say that is when they reach zero, while others say that is when the only assets left are equal to the worker-contributions of those still active (and any excess of worker-contributions over payouts-to-date for those already retired).

      Reply

    • Posted by Anonymous on January 30, 2014 at 11:11 pm

      I think there is too much hype here. Defective 47.2 billion over 30 years is about 1.75 billion per year.comes out to $200 year for each resident of nj 8.8 mill. Yes that’s not including int charge and any return on assets, and ignores cola. That money is already spent, there is no mechanism to reduce pensions already accrued. Unless they change the law to allow states to declare bankruptcy, and, the state is willing to do that on all it’s debts. This amount must be paid and can’t be reduced.

      Reply

  9. I’d like to find out more? I’d want to find out more details.

    Reply

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