New Jersey Petitioning Against COLAs – Highlights

New Jersey filed its cross-petition in the Berg v. Christie COLA case yesterday kicking off with:

Applying the wrong legal standard, the Appellate Division determined that NJSA 43:3C-9.5 creates a contractual right to cost-of-living adjustments. This determination upends the Legislature’s carefully crafted pension reform, threatens the fiscal integrity of the pension systems for active employees, and potentially puts a critical strain on State resources that already face many worthwhile, competing demands. (Preliminary Statement – page 1)

It gets funnier.

Given the enormity of the unfunded liability, the Legislature adopted multipronged reform that requires all stakeholders to bear a share of the burden of returning the pension systems to stability…….For FY 2014, due to unprecedented shortfall, the State….did not pay down any of the unfunded accrued liability.  (all in one paragraph on pages 2-3)

Further, the suspension of COLAs in only temporary.  Legislative-authorized pension committees may reinstate the COLAs when a pension system reaches its target funded ratio.  The pension committees are to give this reinstatement “priority consideration.” (page 3)

A ratio that the system is presumably expected to reach without state contributions toward reducing unfunded liabilities.

If the Appellate Division’s decision stands, then the ARC would include the cost of paying COLAs and the State, already in fiscal straits, would annually have to find billions of additional dollars to meet the demands of -9.5(c). Alternatively, the State would have to defend in court year after year why suspension of COLAs was reasonable and necessary in light of the State’s fiscal health and the competing demands for scarce dollars.

The state is in that position anyway for FY14 and FY15 as they renege on contributions determined assuming that there would be no COLAs*.

While the appellate Division is accurate when it notes that inclusion of COLAs within the scope of a non-forfeitable right statute would be consistent with ERISA, the observation does not advance the analysis here.  ERISA covers private pension plans exclusively and explicitly does not apply to governmental retirement plans. (pages 17-18)

Not true.  According to IRS guidance government plans are covered by ERISA though not all of ERISA, 412 funding rules being the most important exemption.  Among the Code Sections that are listed as applicable to government plans, as outlined in a handy chart and a powerpoint, are 401(a)(2) – exclusive benefit rule –  ; 401(a)(25) – definitely determinable benefit rule -; and possibly even 411(e)(2) – pre-ERISA vesting requirements – that someone might argue New Jersey is violating.

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* Which brings up another point of convenient assumptions.  If the state claims that the COLA elimination is only temporary and they expect COLAs to come back then why is that assumption not included in the actuarial calculations?  Why, in their valuations, don’t Milliman and Buck value benefits as if COLAs were going to return in, let’s say, 2018?

16 responses to this post.

  1. Posted by Anonymous on July 29, 2014 at 5:14 pm

    How much revenue was generated by the NJ Dept of Investments, the NYC Comptroller reported 17+% gain on pension fund investments, NJ must’ve done as well or better.

    Reply

  2. Posted by Carlos on July 29, 2014 at 5:39 pm

    16% I read.

    Reply

    • Posted by Anonymous on July 30, 2014 at 6:10 am

      Where are the union investigations regarding investment revenues? 16% resulted in how much money? What are the fee expenses paid to contracted investment firms? The revenues are for the exclusive benefit of employees and their beneficiaries, the employees contribute twice a month, transparency is required.

      Reply

  3. Posted by Anonymous on July 29, 2014 at 6:53 pm

    perhaps, but how does one really valuate “alternative investments” of which NJ has more than 30% I believe? incredible

    Reply

    • Posted by Anonymous on July 30, 2014 at 6:15 am

      The investments might be alternative but the revenue generated is to support and bolster the pension assets and pay administrative cost related. The union’s should pay close attention to revenues and cost related to a 16% revenue stream supported by employee payroll deductions.

      Reply

  4. Posted by Anonymous on July 29, 2014 at 7:22 pm

    I have read the entire argument and I must say, quite impressive and convincing. I think the appellate court got it wrong. It will be overturned.

    Reply

  5. Posted by Eric on July 30, 2014 at 9:17 am

    John:
    Of course the newly enacted “law” never contemplated the return of cost of living adjustments for NJ’s retirees, and has never been calculated for future budgeting. This is because its abolition is permanent. It was always planned to be permanent. It still is permanent, and always will be so based upon NJ’s corruption.There is a contractual right to COLAs for retirees. Retirees have completed their contract. It is not executory. It has already concluded. COLAs are part of the non-forfeitable right statute since it is not a post-retirement health care benefit as specifically excluded by the existing law.
    Let’s look at equity or what is fair and just, which is difficult to do, in the Garden State. Let us not get too esoteric, however, but lets look at what “Joe six pack” relied upon when he retired in Jersey.
    Perhaps he is paying for part of his post-retirement health care. He looked in his retirement hand book published by the NJ Division of Pensions and Benefits. The handbook outlines what his COLA would be as far as its calculation which is partly based upon the CPI or the Consumer Price Index. He calls pensions in Trenton. He wants to make sure he is justified in relying upon the law .Trenton informs him to use the COLAs he will be receiving to help defray the rising cost of health care.
    He relied upon the existing law at the time of his retirement, which, by the way, is New Jersey law. He was never a party to any “secret agreement” to dispose of the COLA as part of his “shared sacrifice.” Had “Joe six pack” known about the secret deal done by the dirty politicians, he would have stayed at work earning as large a pension as possible, knowing now, full well, that there would be no more COLAs to offset his rising expenses. Whatever amount he retired with would be etched in stone for the rest of his life. Too bad Joe wasn’t part of the corruption. By leaving, he thought he was protecting what he had already earned not knowing it would be stolen from him.
    How about an older couple with a retired public employee leaving his spouse as a beneficiary? The couple never obtained a supplemental life insurance policy knowing that the pension had a cost of living adjustment at the time the public employee spouse retired. Now, the older couple is barred from even purchasing such insurance since there is no insurable risk that an insurance company would be willing to accept based upon their age and related health issues. They are part of the politicians “shared sacrifice” upon which they also were never consulted or had been a party to such madness and deceit.
    All parties detrimentally relied upon the existing law at the time of their retirement and got royally “screwed” for having done so, Jersey style!
    Eric

    Reply

    • Posted by MJ on July 30, 2014 at 1:44 pm

      And now let’s look at the private joe six pack who took personal financial risk to open a successful business or who went to work for a large company. Joe was promised by the politicians that they would look out for ALL taxpayer interests regardless of politics. Joe saved for his own retirement thru investments, 401k etc. then the crash came and Joes business decreased and he had let some employees go. Others did not receive raises, neither did Joe and employees had to switch to lesser plan. In the meantime home values plummet, costs of doing business and taxes rise exponentially and Joe has to somehow make up the difference to continue his business and support his family. At this time Joe estimates that with any luck he and his wife might be able to retire around age 70 if no debilitating medical issues arise that his private insurance will cover a fraction. Meanwhile the public sector is continuing on w/o missing a beat. Early retirements easy work days infinite amt if sick days and holidays life time cadilAc health plans. I’m missing the part where I am supposed to feel outraged that the publics will
      Most likely get screwed

      Reply

  6. Posted by Anonymous on July 30, 2014 at 1:58 pm

    ha ha and screw you! I have every right to get whatever I can before I retire and knowing that even 25 years ago, I took advantage of everything I could. What do I care if the State has to raise taxes, cut education or healthcare? I’m sitting on a golden parachute, baby. And in the end, it’s just me and my family that matters. So long, suckers, I’m headed for Florida soon! muuaaaa!!!

    Reply

    • Posted by MJ on July 30, 2014 at 6:23 pm

      And people like you are the root cause of the problem. Do you have friends, grandchildren, neighbors, co- workers who will remain. As school systems and neighborhoods decline BC people like you are being paid for now there will be even less. You won’t get anything more than what is available which isn’t much. Good luck hope the gravy train doesn’t go over the cliff before you get yours.

      Reply

  7. No not really but I it does give me a chuckle. A golden parachute….right. A golden parachute with a lot of holes in it. The publics don’t realize that the laugh is on them as sad as it it will be to see the crying and grinding of teeth as they try to get a grip on reality. Nice while it lasts Enjoy while you can !

    Reply

  8. Posted by Eric on July 30, 2014 at 10:30 pm

    MJ
    I agree with RealRep; do not take anonymous seriously. My chief concern is the corruption and the total disregard for the rule of law, especially in NJ.
    Good luck to anonymous.
    Eric

    Reply

  9. Posted by Anonymous on August 1, 2014 at 9:53 pm

    re: MJ.. really? I hope you never have to experience the following:
    a) Your 401K plan administrator declares bankruptcy and you have to depend upon the Pension gurantee fund to make it right for you.
    b) Your bank does not “fold” and your assets (above FDiC limits are lost. so sorry… “they promised”
    c) No longer are the words, “I swear” , ” I promise” ” I double secret squirrel promise” are valuable.
    d) “oh, by the way… the last 15 years of promises and contracts are void”

    e) = douche bag

    Reply

  10. Posted by Anonymous on November 28, 2014 at 7:40 am

    In the end Joe six pack gets in the butt?

    Reply

  11. […] (COLAs) to their pensions. The state immediately appealed that ruling on some flimsy grounds and in a few days we will see how persuasive Christie’s people can […]

    Reply

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