Jacobson’s Decision

jacobsen

Mercer County Superior Court Assignment Judge Mary C. Jacobson’s decision in Burgos ran to 129 pages (including 40 pages on the history of the Debt Limitation Clause) and is well worth reading in its entirety but if you want highlights:

BURGOS V. NJ 2/23/15
PAGE 6-7
The Appellate Division, interpreting that language, found that there was a contractual right under the pension laws for public employees to receive pension benefits in retirement, but no contractual right to State funding to support the actuarial soundness of the teachers’ pension system. Ibid. After that decision was issued, the Legislature enacted Chapter 78, which amended the pensions statutes to include the unprecedented language at the center of the current dispute that cloaks the State’s obligation to address the actuarial soundness of the pension system in constitutional protections.  Now, for the first time, Chapter 78 expressly provides that members of the public pension systems “shall have a contractual right to the annual required contribution amount being made by the member’s employer or by any other public entity.” N.J.S.A. 43:3C-9.5(c)(2); see also Berg, supra, 436 N.J. Super. at 240 (describing these events). The statute also specifically provides that, “The amount of the State’s annually required contributions shall be included in all annual appropriations acts as a dedicated line item.” N.J.S.A. 43:3C-9.5(c)(1).

PAGE 11-12
Moreover, the Legislature further emphasized the necessity of making the annual payments by deliberately modifying the provision of the statute that had reserved the right of the State to change the retirement systems by adding that, “The rights reserved to the State in this subsection shall not diminish the contractual rights of employees” created by Chapter 78. N.J.S.A.   43:3C-9.5(e). The clear intent of this language was to insulate the State contributions into the pension funds from the vicissitudes of the political process that had placed the integrity of the funds in significant jeopardy in the past. Indeed, the Governor himself characterized this pension legislation as constituting “historic reforms” that “bring to an end years of broken promises and fiscal mismanagement by securing the long-term solvency of the pension and benefit systems.” Press Release, New Jersey Leads the Way with Landmark Bipartisan Pension and Health Benefits Reform (June 23, 2011), http://www.state.nj.us/governor/ news/news/552011/approved/20110623d.html.

PAGE 14
Vested participants who became members of the systems before May 21, 2010, obtain a “non-forfeitable right” to receive benefits when they earn five years of service credit in the retirement system. N.J.S.A. 43:3C-9.5(b).

PAGE 32
The implication in both Spina and NJEA, however, is that the Legislature could create such a contractual right if it used unmistakable language demonstrating its intent. Moreover, shortly after the NJEA decision was issued and in obvious response to it, the Legislature enacted Chapter 78, which expressly states that members of the public pension systems “shall have a contractual right to the annual required contribution amount being made by the member’s employer or by any other public entity.” N.J.S.A. 43:3C-9.5(c)(2). This recent statutory amendment has thus superseded the contrary holding by the Appellate Division in NJEA, supra, 412 N.J. Super. at 205, and the earlier decision of the New Jersey Supreme Court in Spina, supra, 41 N.J. at 400.

PAGE 43
Rather, this historical gloss suggests that the framers intended for the [Debt Limitation] Clause to ensure that the Legislature engage in the ultimate form of fiscal responsibility: that the State make good on its prior commitments before taking on new ones.

PAGE 99-100
Having concluded that neither the Debt Limitation Clause nor the Appropriations Clause bars the contractual right contained in Chapter 78, and that the statute’s contractual right also does not impinge upon the Governor’s constitutional veto power, the court will now consider whether the State’s failure to make the full ARC payment to the pension funds for FY 2015 constitutes a substantial impairment of plaintiffs’ constitutionally-protected contract rights.

PAGE 106-7
The State also claims that the health of the pension system has not been negatively affected by the Governor’s decision not to make the State’s full payment for FY 2015. Defendants’ assertions on this point are based largely on the certification of John D. Megariotis, Deputy Director of Finance, Division of Pensions and Benefits. Mr. Megariotis certifies that if the State returns to its regular annual payment schedule including the full ARC payments in the future, then the deferral of the 4/7ths UAAL payment this year “will not materially impact the health or stability of the pension system.” Megariotis Cert., Def. App., at 518. Defendants’ argument about the health of the fund is premised on the assumption that the State will return to its full payment schedule in FY 2016. Unsurprisingly, the Governor does not make any promises that the budget for FY 2016 will include a full payment for the pension systems. The court is unwilling to rely on what has now become a succession of empty promises.

PAGE 117
Based on the evidence before the court, at best, the State executive defendants’ justification for FY 2015 appears to be that they have no responsibility to explore funding options for the UAAL with the Legislature in an effort to effectuate a compromise. In addition to the testimony of Mr. Sidamon-Eristoff and the Governor’s veto message, the State provides certifications from Mr. Sidamon-Eristoff; Ms. Charlene Holzbaur, Director of the Office of Management and Budget within the Department of the Treasury; Mr. Roger Cohen, Director of the Office of Revenue and Economic Analysis and Assistant Treasurer; and Mr. John D. Megariotis, Deputy Director of Finance, Division of Pensions and Benefits. None of the certifications give evidence that alternative courses of action that would allow increased payments to the UAAL were carefully considered. And none of the certifications propose any funding mechanism that could provide appreciably more money for the ARC than the normal cost for FY2015.

PAGE 123-4
Finally, defendants argue that if the court orders that plaintiffs have a contractual right to pension payments, the court should give future effect to its holding to avoid disrupting the FY 2015 budget at a time eight months into the fiscal year. v. McGreevey, 180 N.J., 590, 599 (2004), in which the Court invalidated the FY 2005 Budget Act because it relied on bond sales in order to balance income with the year’s expenditures. Holding that bond debt cannot be considered income for the purposes of the Appropriations Clause, the Court applied its ruling prospectively to avoid the disruption that would inevitably result from “significant revisions to, if not a complete overhaul of, the current fiscal year’s budget.” Ibid. However, Lance can be distinguished because the Court in that case was not faced with an action alleging an impairment of a constitutional right.

PAGE 126-7
Although the end of the fiscal year is just over four months away, it is conceivable that there may be revenue available between now and the end of the fiscal year, when the pension fund payments are due, that could be directed to the UAAL. The State will not know for certain whether this year’s tax revenues will exceed what was estimated in the FY 2015 Appropriations Act for a few more months. If revenues do exceed what was anticipated in the Appropriations Act, those funds may be available to increase contributions to the pension funds. The court cannot allow the State to simply turn its back on its obligations to New Jersey’s public employees–especially in light of the fact that the State’s failure to make its full payment constitutes a substantial blow to the solvency of the pension funds in violation of plaintiffs’ constitutional rights, and due to the fact that the terms of the UAAL payments were set forth–and even publicly endorsed–by the Governor himself. In short, the court cannot allow the State to “simply walk away from its financial obligations,” especially when
those obligations were the State’s own creation.

And Finally:
The court acknowledges that plaintiffs are prevailing parties and entitled to counsel fees under N.J.S.A. 43:3C-9.5(c)(2). The court’s order provides dates for submission of plaintiffs’ application for fees by plaintiffs’ attorneys.

15 responses to this post.

  1. Posted by Tough Love on February 24, 2015 at 11:51 am

    John,

    Although it was not an issue in the litigation, nor was it addressed, what is your understanding of NJ’s legal right to reduce the pension accrual rate for the future service of CURRENT workers?

    While there are substantive arguments to justify even the reduction of PAST Service accruals, I realize that doing so is a very sticky issue with (in the absence of a complete State insolvency) little chance of happening.

    However, to continue to grant FUTURE Service accruals using the current grossly excessive (and clearly unnecessary, unjust, and unfair) pension accrual rates, very young full retirement ages, subsidized early retirement adjustment factors, very liberal definitions of pensionable compensation, and (a financial god forbid) a reinstatement of the COLA increases, is financial suicide. It cannot (and will not) end well unless the prospective “generosity” of these pensions is tamed (i.e., materially reduced).

    Do you believe that Future service accruals for CURRENT employees can be legally reduced?

    Reply

    • It’s too risky to reduce accruals since unions will argue that once you are vested then the formula in place when you were hired (or vested) is what is protected.

      Better to admit that New Jersey is not equipped to manage a Defined Benefit plan, terminate it, and set up a DC plan going forward.

      Reply

      • Posted by Tough Love on February 24, 2015 at 1:01 pm

        John,

        I’m assuming by “terminate it”, you mean only for NEW workers, not for the FUTURE Service of CURRENT workers. Is that correct?

        Reply

        • Posted by dentss dunnigan on February 24, 2015 at 1:13 pm

          Unfortunately, “Pension plan assumptions” only make an a$$ out of the pensioners that believed the promises…
          as no one holds those making the promises accountable.

          Reply

        • I mean terminate the whole plan immediately since New Jersey politicians have proven they can’t be trusted with it. This does not mean reduce benefits since a target benefit plan can be drawn up to match what everyone is currently accruing. Why the union bigwigs (usually older) would have a problem with this transparency solution is that their 30-year-old brethren will see how much better the 55-year-olds make out under a DB concept.

          Reply

          • Posted by Tough Love on February 24, 2015 at 2:23 pm

            Indeed , …. and for the less well informed, it is not unusual for the cost of a NJ police officers pension accruals in EACH of the 5 years prior to retirement to exceed $100,000 annually.

            And the Private Sector taxpayers who pay for almost all of it gets to contribute (on a tax-deferred basis) a maximum of less than $20K in a 401k Plan.

  2. Posted by Anonymous on February 24, 2015 at 12:05 pm

    Finally someone is doing the right thing!!!

    Reply

  3. Posted by truthnolie on February 24, 2015 at 1:17 pm

    JB,

    On page 129 there is this:

    “The complaints raise a number of other claims that were not argued by plaintiffs either in the moving briefs or in the reply briefs. For example, the complaints allege estoppel, unconstitutional taking, breach of the implied covenant of good faith and fair dealing, and violation of a criminal statute. But as none of these claims were argued by plaintiffs as part of their motion for summary judgment, and as the court’s analysis above is dispositive of the matter, the court does not reach the merits of these remaining claims.”

    Any idea on why none of the issues mentioned (esp. the “violation of a criminal statute”) were argued by the plaintiffs???…..Was it because they felt there was enough to overturn it anyway and not to prolong the case (or that it might fail on proving one or more of the claims…although I don’t see how it would)?

    IMO….they should have argued each and every component so, once decided in their favor, it would have only strengthened the case on any appeal.

    Reply

    • Referring to complaints not argued might be there for some future appeal if this gets reversed and plaintiffs want to start arguing it. It’s already a clear decision so it doesn’t need to be stronger right now.

      Reply

  4. Posted by Tough Love on February 24, 2015 at 2:27 pm

    A live stream of Christie’s FY2016 Budget speech (at 2 PM today) can be seen here:

    http://www.livestream.com/governorchrischristie

    Reply

  5. When will the COLA dispute be settled?

    Reply

  6. Posted by Tough Love on February 24, 2015 at 4:47 pm

    Just LOVE the NJ Commission’s proposals ….. GREAT JOB !

    Reply

  7. Posted by Tough Love on February 24, 2015 at 5:20 pm

    From the NJ Pension Commission Report Overview:

    Freeze the existing pension plans; benefits earned to date would not be affected,
    but taxpayers cannot afford additional benefits to be earned under the existing plans

    Align future public employee retirement benefits with private sector levels;
    this is the sensible thing to do on its own merits and the savings will make
    funding more secure for employees and less painful to taxpayers

    Also align public employee health benefits with private sector levels; get ahead of the curve in controlling these staggering costs before they crowd out retirement benefit
    s from State and local budgets

    Fairly realign State and local responsibility for new and sustainable pension
    and health benefits; this will produce the best result from the perspective of
    employees and the State’s taxpayers as a whole
    —————————————————————————-

    The first 3 are exactly what I have been advocating for for your YEARS …. Public Sector Pensions & Benefits EQUAL TO but NOT better than what Private Sector Taxpayers typically get from their employers.

    The last item looks like a potential problem ….

    The “State” now has funding responsibility for Teacher pensions and retiree healthcare benefits. If these obligations are pushed down to the Local level, local property taxes will skyrocket. Localities should explore their legal “obligation” to accept such a financial transfer of liabilities w/o FULLY compensating assets.

    Reply

    • Posted by Bob G on February 25, 2015 at 1:07 am

      Tough Love. In response to your last paragraph “The “State” now has funding responsibility for Teacher pensions and retiree healthcare benefits” Although I do not know this with certainty, I have been under the impression local governments were responsible for funding pension and healthcare benefits for their employees/retirees. I would think the same funding mechanism is in place for employees/retirees of school districts. Is that incorrect?

      Reply

      • Posted by Tough Love on February 25, 2015 at 1:15 am

        Somehow teachers are treated differently than other local employees, If I recall correctly, the “State” assumption of those responsibilities was associated with the implementation of the NJ “income tax” in the 1970s.

        Reply

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