Arguments for pension payments for FY2016 were set to be heard on May 12 but were adjourned pending the decision by the New Jersey Supreme Court about the FY2015 payments. We now know they do not have to be made so those proceedings are now moot.
But there is another case out there that might also now be decided: Berg v. Christie where the state is appealing a decision made last year to restore cost-of-living-adjustments for retirees. It is being ‘held’ and is not yet on the court radar but if the lower court ruling is upheld it would cost the state billions of dollars.
Below is a blog from a year ago updating the figures to show what COLA restoration would cost now.
The virtual elimination of cost-of-living adjustments (COLAs) for New Jersey retirees was the linchpin of the 2011 reforms. In a July 14, 2011 press release the governor claimed savings of:
- $79 Billion in State Contribution Savings: Over the next 30 years, the state pension contribution will be $148 billion, a projected savings of nearly $80 billion. Without reform, the state was projected to contribute $227 billion over the same period.
- $43 Billion in Local Government Contribution Savings: Over the next 30 years, local government pension contributions will be $70 billion, a projected savings of nearly $43 billion. Without reform, local governments were projected to contribute $113 billion over the same period.
Now that COLAs have been ruled to be a contractual right how much will it cost to make retirees whole?
Extrapolating from official proclamations of savings it would be about $100 billion in contributions over 30 years if the plan had another 30 years of existence. It doesn’t.
COLAs were suspended as of August 1, 2011 and according to the Division of Pensions Fact Sheet #18:
Prior to the enactment of Chapter 78, P.L. 2011, the Pension Adjustment Program provided a cost-of-living adjustment (or COLA) to retirees and their eligible survivors if receiving a monthly retirement allowance from one of the state-administered retirement systems. The first COLA was paid in the 25th month after the date of retirement. Subsequent cost-of-living adjustments were computed annually and the adjustment was reflected in the February 1st check (which is payment for the month of January). If a beneficiary was entitled to receive a monthly pension upon a retiree’s death, the COLA was applied to that benefit based upon the year of retirement.
To calculate the COLA, the Division of Pensions and Benefits used the CPI for Urban Wage Earners and Clerical Workers (CPI-W), U.S. City Average, All Items, 1982-84=100. The rate of increase was equal to 60 percent of the percentage of change between the average CPI for the calendar year in which the member retired and the average CPI for the 12 month period ending August 31st immediately preceding the year when the adjustment was payable.
Using that as a road map with numbers coming from the CPI-W table a retiree who got a check for $1,000 in July, 2011 would now be getting a check for $1,059.97 if the COLAs continued. Through July, 2015 that retiree would have been shortchanged by $1,726.*
Assuming $10 billion is currently being paid out to retirees and depending on the interest adjustment, if any, that amounts to about $1.2 billion that is now due to current retirees in lost COLAs with another $50 million liability accumulating monthly.
After all appeals in this case are exhausted in about two years, if this ruling holds the fund might have just enough money left in it to make that final $5 billion payment.
For anyone who feels like checking my numbers:
COLA effective February 1 of each year based on 8/31 CPI-W factor
Average 8/31 CPI-W factor
- 8/31/10: 214.205
- 8/31/11: 223.326
- 8/31/12: 228.184
- 8/31/13: 230.537
- 8/31/14: 234.17
Percentage increase applied February 1 with new dollar payment:
- 2/1/12: 2.555%; $1,025.55
- 2/1/13: 1.305%; $1,038.93
- 2/1/14: 1.0062%; $1,049.38
- 2/1/15: 1.0095%; $1,059.97
Total payments missed: 12 x $25.55 + 12 x $38.93 + 12 x $49.38 + 6 x $59.97 = $1,726.14