New Jersey is trying to entice the unions into accepting the Christie Freeze plan by dangling the remaining trust assets as bait. Page 6 of the Roadmap (with accompanying footnote 23) explains the deal:
transferring the assets, liabilities and full responsibility for the existing pension and new retirement plans to employee entities willing and able to assume this obligation. 23
23 The “employee entities” holding the plans may have to be structured as “government plans” to comply with ERISA and other regulatory requirements and tax considerations. In this Report, “employee entities” refers to plan structures that satisfy these requirements while providing employees with the greatest permissible degree of ownership and control over the assets and liabilities of the plans. Determining the exact form of entity that would satisfy these requirements will be one of the tasks to be undertaken by the Implementation Task Force discussed in this Report.
Later on page 12 of the report another sweetener:
The preceding elements of the Commission’s approach would reduce the State’s obligation to fund the existing pension plans to a predetermined sum each year. This would, in turn, facilitate transfer of the assets and liabilities of these plans and of the new retirement plans to employee entities willing and able to assume these obligations. If this were done, employees would control their own destiny with respect to these benefits – and assume the risk of managing the plans to ensure that the available funds are sufficient to pay for the provided benefits. This transfer would permit the State to provide the bond market with a much greater degree of cost certainty.
Here is the real deal on this proposed transfer:
The unions would like to have the assets under their control (as unions in the private sector do with multiemployer plans) since part of that money can be doled out to their friends in the investment and legal fields or even to themselves*.
However in the private sector multiemployer plans are covered under ERISA, most notably by the funding rules, which is something those running these zombie plans would want to avoid. In addition ERISA would bring the Pension Benefit Guaranty Corporation (PBGC) into the picture which is a coverage not sought by government unions (who do not want the added oversight) or the PBGC itself (which would not want the added liabilities) or even plan participants (now that there is a mechanism for cutting benefits). Hence we have that footnote 23 which seems to imply that ERISA would need to be amended to assure that these public sector multiemployer plans are exempt under ERISA**.
As for providing “providing the bond market with a much greater degree of cost certainty” this may have something to do with taking those massive liabilities off of the state’s books (though presumably the obligation to pay would still be there based on what the NJEA and other unions bill) until such time as GASB catches on.
* On the form Schedule C attachment to the 5500 filing anyone getting at least $5,000 must be listed. Check out all the professionals and fund employees on this filing.
** Or the footnote could mean that ERISA would need to be amended to assure that these public sector multiemployer plans are NOT exempt under ERISA since it may be a way to dump those unfunded liabilities onto the PBGC. Either interpretation is possible since when you are drafting language with hidden meaning sometimes the real meaning gets lost.