Christie on Pensions: Right Message; Wrong Approach

Governor Chris Christie seems to have finally gotten it: the New Jersey pension system is headed for an ugly crash – but his campaign to scare stakeholders straight, as reported today, makes his handling of Bridgegate appear adriot by comparison.

“I’m ready work with the entire Legislature to come up with ideas to fix this, but if they’re unwilling to that do that, this is a problem we’re going to own,” Christie said during a town hall in Stirling, not far from his home in Mendham. “I’m willing to take more extreme measures.”

On his radio show tonight on NJ 101.5 FM, Christie said he has “significant powers” through “executive action” to make changes to the pension system. He declined to elaborate.

In 2011 he had concrete ideas (dumb ones but concrete) and got them implemented.  They failed and now he wants something extreme which could be anything from across the board cuts to divine intervention.  If he’s looking for ideas here’s one: put whoever does have good ideas based on honest information in charge and stop butting in.

“Think about that, nine out of every 10 dollars goes for nothing that is productive for our future as a state,” Christie said. “It merely pays for past mistakes and bad promises.”

Those past mistakes include promises made to retirees (who foolishly believed what was in their employee handbook) that politicians who insist on being addressed as ‘honorable’ are about to welch on.

“I’m not going to worry about politics anymore everybody,” he said. “This is it. I’m on the back nine. When you’re on the back nine and you don’t have to worry about playing another nine, your only obligation is to tell people the truth.”

So what was it that we got on that front nine?

32 responses to this post.

  1. Posted by Tough Love on February 27, 2014 at 3:41 am

    John, What’s your take on his comment that … “…… he has “significant powers” through “executive action” to make changes to the pension system”?

    What can he do by executive order ?

    Reply

    • I took it to mean across-the-board cuts in pensions or something with making retirees and employees pay a lot more for health insurance.

      Not sure how he would go about doing that but next week the 7/1/13 actuarial reports are supposed to be coming out with another jump in the official unfunded and the COLAs look like they’re going to be reinstated so he needs something big (as does the plan if it’s to avoid pure pay-go).

      Reply

  2. Posted by Anonymous on February 27, 2014 at 7:28 am

    Wow and you people still believe him after all his lies and deceit. You people are either really trustworthy or else fools. He is lying deceitful man. He kept the smoke and mirrors in place you fell for it. His agenda is to make himself look good at any cost. He seems to have succeeded yet again even after Bridgegate. Let me repeat myself, he will do nothing except try to make himself look good, that is what he does, that is all he does. Sorry to disappoint you but the evidence is there and you choose to ignore it.

    Reply

  3. Posted by Anonymous on February 27, 2014 at 8:04 am

    “significant powers” through “executive action” to make changes to the pension system” means that he is lying in order to show the public that he is really trying to do something but they wont let him do it. he makes false claims only to bolster his position. He tried yet again but to no avail. Problem is he only tries using ideas that wont work or are illegal. All done so he can say, I keep trying but the wont let me do anything.

    Reply

    • Posted by Tough Love on February 27, 2014 at 1:21 pm

      And what is LEGAL and WILL work to fix the problem … NOT INCLUDING raising taxes?

      Reply

      • I think he can use the line item veto to cut almost all spending on non pension spending when budget time comes, but this only slaps the legislature in the face on why they ALL need to find a way to amend the Constitution to eliminate OOLAs and pension programs from any form of protection under an impairment of contracts theory (if indeed they are entitled to such )

        That would be extreme (and necessary)

        Reply

        • As long as the legislature is focused on bridge-gate, i see Christie having nothing to lose by calling out the Pension issue as the crisis it is and drawing the oxygen away from the former (which is much ado about nothing, anyway)

          Reply

  4. All politicians say they are going to fix things and then turn around and blame those across the aile for not doing anything. It is best to reform now as opposed to stringing people along. Aside from the actuarial and finance side, does anyone really believe that these overly generous retirements will go forever? Is there anyone left to tax?

    Reply

  5. It seems to me that Christy had his chance during his first term and blew it. He did enough to say that he did something but it is now falling apart–as John believes that the COLAs will be re-instated and I’m thinking perhaps retroactively?? His administration is embroiled in so may scandals how can we believe anything from him except more of the same. All of a sudden, the pensions need more fixing, he is trying to close the barn door when the horse has already run away.

    Reply

    • Posted by Anonymous on February 27, 2014 at 6:15 pm

      All the ceasing of COLAs did was allow Christie to make a payment in to the pension system, although it was not nearly enough, it make him look good compared to other governors. However it did not make a dent. Since Colas were taken it was the public employees who actually made this payment into the pension system that Christie gets the credit for.

      Reply

  6. Posted by Javagold on February 27, 2014 at 5:15 pm

    The Achilles Heel of the public takers is the health benefits. They are not protected. Take them all away at once. And throw them all in Obamacare.

    Reply

    • Posted by Tough Love on February 27, 2014 at 5:46 pm

      It is patently absurd that TAXPAYERS should pay for perhaps 15 years of what is likely Cadillac-level family coverage at a TRUE cost (NOT one that averages in the costs of younger actives … an often used gimmick of Public Sector Unions to make the costs look lower) of perhaps $25K annually or 15x$25K= $375,000 for a Police Officer that retires at 50 …. or 10x$25K=$250,000 for retirement at 55.

      And with EACH of the above #s likely 50-100% large with EXPECTED Medical Care inflation.

      Reply

    • Posted by Anonymous on February 27, 2014 at 6:30 pm

      “The Achilles Heel of the public takers is the health benefits. They are not protected. Take them all away at once. And throw them all in Obamacare.”

      Don’t know how language for State employees reads regarding benefits after retirement but just about every local police & fire contract have benefits after retirement deals which are contractual guarantees…..so it won’t change anything with them. Of course the towns can look to change that in future agreements but those that already retired with health benefits (usually to age 65 or Medicare) cannot have them just taken away.

      Reply

  7. No it is not fair but I don’t believe that Christie or anyone else will be to do anything. Christie will be long gone and with his legacy of “told you so” if and when it implodes

    Reply

  8. Let’s not forget all of Christies double and triple dippers and childhood friends placed in high places making tons off the taxpayers all in exchange for lying cheating corruption and cronyism. Christie needs to start there if he wants to send a message about pension reform and lowering debt

    Reply

  9. Posted by Jomama on February 28, 2014 at 12:39 pm

    What bothers me about Christie si that he made the deal, and now he’s trying to back out of his end of it. It is not OK to do that, and as the article on NJ Spotlight points out, there is very little the state can do, except of course to pay up. Kicking the can down the road for 20 years has got us into this. These funds do not have to be paid all at once and can be bonded over 30 years. An argument over whether they are “fair” or not is completely off topic. The public employees have paid their portion, and have every right to expect promised benefits. IF the law changes where states can declare bankruptcy and IF NJ were do that then MAYBE a small portion of these pensions could be cut. But that’s not going to happen. A better discussion would be how to fund them better, how to stop the double dipping, and what efficiencies could be garnered.

    Reply

    • Posted by Tough Love on February 28, 2014 at 3:39 pm

      Quoting …” These funds do not have to be paid all at once and can be bonded over 30 years. An argument over whether they are “fair” or not is completely off topic. The public employees have paid their portion, and have every right to expect promised benefits.”

      My thought on the three sentences in that quote.

      Re #1 ……. Bonding is the worst thing possible for NJ’s Taxpayers. The theoretical investment return arbitrage RARELY works favorably and NJ’s Taxpayers are stuck paying off the bond Principal & Interest (often backloaded to make the interest payments even greater). Meanwhile the proceeds of the Bond sale (less fees, commissions, and other amounts usually skimmed off for completely unrelated purposes, ala Gov. Whitman’s POBs) become Pension Plan assets, ARTIFICIALLY making the Plans look MUCH better funded (but not really because of the new POBs) thereby reducing the pressure for HONEST, NECESSARY, and MATERIAL structural reforms to a system run-amok … meaning very material (50+%) reductions in the pension accrual rate for the FUTURE Service of all CURRENT workers. Even AFTER such a reductions, NJ’s Public Sector pensions would STILL be better than those granted the vast majority of NJ’s comparable PRIVATE Sector workers.

      Re #2 ……. No, there are valid reasons why “fairness” SHOULD BE part of the discussion even though under under privately negotiated contracts such is generally NOT the case. Compensation negotiations between Public Sector Union reps and our elected official (or their management representatives) are anything but “arms length”. The Taxpayers are the ultimate payers of promised Public Sector pensions and benefits (and hence THEIR interests should be of paramount importance to the elected officials negotiating on our behalf) and time and again it has been shown that our elected officials betray Taxpayer-interests for what benefits THEM (getting re-elected), and they do so via the horse-trading of Public Sector Union campaign contributions and election support, in exchange for favorable votes on pay, pensions, and benefits. In addition, those negotiating on behalf of the Taxpayers know that THEIR OWN pensions and benefits will be as greater or greater than those they grant Union-represented workers in such negotiations. And this being the case, they have ALWAYS granted FAR MORE than what is necessary (to attract and retain a qualified workforce) and what comparable workers in the Private Sector typically receive from their employers.

      Re #3 ….. Yes, NJ’s Public Sector workers have always paid their portion, but “fairness enters into the picture here as well. Is 75% of total expected Plan costs a fair “portion: for the workers to pay? How about 50%, or 10%? Actually, what IS appropriate is NOT the amount or portion THEY pay, but that what Taxpayer’s pay towards THEIR pensions is comparable to what Private Sector employers pay towards THEIR worker’s retirement Plans. THAT is appropriate and fair for 2 reasons; because EQUAL Public/Private Sector “Total Compensation” (cash pay + pensions + benefits) in comparable jobs IS an appropriate goal, and because with near equal “cash pay” in comparable Public/Private Sectors jobs, there is NO justification for ANY greater Public Sector pensions.

      So what do Private Sector workers get from their employers? They typically get their employer’s 6.2% of pay Social Security contribution on their behalf plus 3%-5% of pay as an employer “match” into a 401K Plan, That suggests that Public Sector workers should similarly get a Taxpayer contribution of 3%-5% of pay (if they do participate in SS) and 6.2%+(3% to 5%) = about 10% of pay if they do not participate in SS.

      Now lets look at what NJ’s Public Sector workers typically get now in pension benefits. For Typical 30-yr career non-safety workers retiring at in the 55-60 age range, the TOTAL cost of their pension (express as a level % of pay) is about 28% assuming no COLA and about 34% assuming 2% annual COLAs. For safety workers (with richer pensions) these %s become 35% assuming no COLA and about 43% assuming 2% annual COLAs.

      The above TOTAL Plan costs tell us two things:

      (1) The employee contributions are RARELY more than 20% of the total cost of their promised pensions, with the the 80% balance the responsibility of the Taxpayers and coming from Taxpayer contributions (and the investment earnings thereon), and

      (2) the 80% Taxpayer-share is
      (a) 0.8×28%=22.4% for No-COLA, non-Safety-worker pensions, .
      (b) 0.8×34%=27.2.% for COLA, non-Safety-worker pensions,
      (c) 0.8×35%=28.0% for No-COLA, Safety-worker pensions,
      (d) 0.8×43%=34.4% for COLA, Safety-worker pensions,
      These %s, being what NJ’s Taxpayers are NOW responsible for (expressed as a level% of pay) are 2.2 to 2.4 TIMES greater than the roughly 10% of pay they get from their employers (towards their retirements) assuming the Public Sector workers DO NOT participate in Social Security, and 5.6 to 8.6 times greater than the roughly 4% of pay they get from thoer employers (towards their retirements) assuming the Public Sector workers DO participate in Social Security.

      There is simply NO JUSTIFICATION for Taxpayer-funding of pensions multiples greater than what they get.

      Reply

      • Posted by Anonymous on February 28, 2014 at 4:26 pm

        Regarding point #3, in your professional opinion, is the typical employer 401K match enough for a worker to retire on, and in what circumstances?

        Reply

        • Posted by Tough Love on February 28, 2014 at 5:03 pm

          Clearly it’s not, but neither is your attempt to divest the reader attention from my point …………. that there is NO JUSTIFICATION for Taxpayers to pay more in total compensation to Public Sector workers than they receive in comparable jobs (or when not directly comparable, jobs with similar risks, education, experience, knowledge, and skill sets).

          And with CASH PAY usually quite close, the MULTIPLES GREATER Public Sector pensions (and FAR better benefits) … 80% on the Taxpayers’ dime … is a gross injustice to the Taxpayers.

          Reply

      • Posted by Anonymous on February 28, 2014 at 9:35 pm

        Here’s research quote on teachers pay relative to other occupations and benefits (below). Now’s your chance–pay $100,000 for a college degree, start at 50k and since capped at 2% you could be making 100k—-in 36 years!

        The extent to which teachers enjoy greater benefits depends on the particular wage measure employed to study teacher relative pay. Based on a commonly used wage measure that is similar to the W-2 wages reported to the IRS (and used in our analyses), teachers in 2002 received 19.3% of their total compensation in benefits, slightly more than the 17.9% benefit share of compensation of professionals. These better benefits somewhat offse
        t the teacher wage disadvantage but only to a modest extent. For instance, in terms of the roughly 14% hourly wage disadvantage for teachers we found relative to other workers of similar education and experience, an adjustment for benefits would yield a total compensation disadvantage for teachers of 12.5%, 1.5 percentage points less.

        Reply

      • Posted by Anonymous on February 28, 2014 at 9:39 pm

        Your animosity towards the public worker gravy train, makes you a fool for not being employed by the public.

        Now’s your chance–drop $100,000 for a college education at Rutgers, get a salary at $50,000 and since prop taxes are capped at 2%–in 36 years, you’d be making $100,000.

        Mark my words, in 10 years, the state will be trying to find ways to attract new teachers.

        Reply

    • The point you may be missing is that the promises were so unrealistic ally generous that it would be difficult to fund in the best if times. Now services and jobs will be cut and it’s anybody’s guess as to how it will end up. I think that Christie knew how bad the situation was a few years ago and the very modest reforms that were made were chump change

      Reply

  10. Posted by NumerateJim on February 28, 2014 at 6:16 pm

    The governor misunderstands that a portion of the state’s pension contribution is part of the compensation of current employees. So some of the money does contribute to something of value to our future. That is the education of the children in school today.

    It would be helpful to know how much of the contribution is current compensation and how much is catchup for past missed contributions for current retirees.

    Reply

    • They break that out in the reports between Normal Cost and Amortization payment.
      For the Teachers 7/1/12 valuation it’s on page 10 of 82 here:
      http://www.state.nj.us/treasury/pensions/pdf/financial/2012tpaf.pdf

      The percentage officially is 17.3% for Normal Cost and 82.7% for paying for past underfunding and then they apply the 4/7ths.

      Reply

      • Posted by Tough Love on February 28, 2014 at 9:30 pm

        John, I see the 2012 normal cost figure of $394,080,352, but what is that as a % of cash pay?

        Reply

        • According to the chart taken from the actuarial reports:
          https://burypensions.files.wordpress.com/2014/02/njp2000-2012.xls

          Teacher salaries were $10,488,890,840

          so the NC as perc. of pay: 3.76%

          Seems pretty low since teachers are putting in about 6.5% of pay now (going up to 7.5% by 2018) so, on paper, they’re overpaying and the state is saving making money off pensions.

          Reply

          • Posted by Tough Love on February 28, 2014 at 10:21 pm

            I’m sure you’ve noticed my back-and-forth comments with “joelfrank” over the last few day’s comments on your blog. As part of the backup to my comments to joelfrank, I ran many iterations of COLA and non-COLA pensions, with 25, 30 & 35 year working periods, and with assumed earnings rate from 5% to over 10% (both in the working and payout period).

            Assuming the pension is fully funded over the worker’s career, and using investment returns in the 5-6% range (higher than annuity writers would use), for those that work a full 30+ year career, retire and survive to their life expectancy, its hard to find level annual TOTAL Normal costs less than a level annual 25-30% of pay for non-COLA pensions and 35-40% for COLA pensions. And importantly, my calculations were all with a low-formula benefit of only 1.67% of final average pay per year of service.

            Since I don’t have a NJ employee population model with actual years of service, pay, age, pension formula, early terminations with little or no pension, etc., I cannot determine what reduction in the %s I noted above would result from inclusion of such terminators, shorter service workers, etc., but I suspect that the TOTAL Normal cost FOR ALL ACTIVE PLAN PARTICIPANTS using best-estimate assumptions is quite a bit higher than the 3.76% + the ( 6.5% to 7.5%) = 10% to 11% that NJ would now contributes IN TOTAL (even w/o the 4/7 reduction).

            My guess is that it is at least double NJ’s 10%-11% figure.

  11. Posted by Anonymous on February 28, 2014 at 9:38 pm

    The extent to which teachers enjoy greater benefits depends on the particular wage measure employed to study teacher relative pay. Based on a commonly used wage measure that is similar to the W-2 wages reported to the IRS (and used in our analyses), teachers in 2002 received 19.3% of their total compensation in benefits, slightly more than the 17.9% benefit share of compensation of professionals. These better benefits somewhat offse
    t the teacher wage disadvantage but only to a modest extent. For instance, in terms of the roughly 14% hourly wage disadvantage for teachers we found relative to other workers of similar education and experience, an adjustment for benefits would yield a total compensation disadvantage for teachers of 12.5%, 1.5 percentage points less.

    Reply

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