Amended Complaint in Pension Payment Case

On Friday lawyers for the three largest New Jersey Pension funds (PERS, TPAF, and PFRS) filed a motion for leave to file a second amended complaint on August 21, 2015 in Burgos v. Christie which included a copy of the amended complaint they intend to file.

I will have something to say about this filing (which included some significant misstatements of fact) in the next blog but, for now, some notable excerpts:

This is a collection action under the New Jersey statutes governing each of the Plaintiff Retirement Systems for breach of contract and constructive trust for unpaid contributions owed to the Retirement Systems administered by the Plaintiff Trustees. Plaintiffs seek to enforce the State’s statutory and common law obligation to remit statutorily mandated “unfunded accrued liability contributions” on behalf of the active membership, retirees and beneficiaries of the Retirement Systems.

1. Since the second decade of the 20th Century, New Jersey has consistently and intentionally failed to fund its public employee retirement systems in a consistent and cogent manner so as to ensure that benefits earned by dedicated officers and employees of the state would be available as promised. Given the current drastic underfunding of each of the Plaintiff Retirement Systems, that promise is in real and present danger of failing.

17. The promise to make the annual required contribution is separate and apart from the promise that the Legislature will make the necessary appropriations to satisfy those obligations and appears in a separate subsection of Chapter 78. N.J.S.A. 43:3C-9.5(c)(l) and (c)(2).

18. It was only the promise to make the appropriations that was held to be unenforceable by the Supreme Court.

19. The annual payment of the annual required contribution is mandatory and ministerial. The legislative branch and the executive branch play no role in the calculation or determination of the amount of the contribution. There is no discretionary element or aspect to the State’s obligation to make this annual contribution. The amounts due are to be entirely calculated by the Plaintiffs and their actuaries.

32. Under the terms of Debt Limitation clause as applied in Burgos, the maximum amount that can be required to be appropriated without voter approval is a sum less than 1 % of the budget for a given year.

33. For Fiscal Year 2014, the budget was $32,976,962,000. Therefore, the maximum amount that could have been required to be appropriated without voter approval was
$329,769,000.

34. This limitation is irrelevant for FY 2014, however, as the entire amounts necessary to pay the Annual Required Contributions for each of retirement systems was appropriated by
the Legislature and signed into law by the Governor as part of the FY 2014 Budget.

35. For FY 2015, the budget was $32,567,765,000. Therefore, the maximum amount that could have been required to be appropriated without voter approval was $325,677,650.

36. For FY 2016, the budget is $33,8.00,000,000. Therefore, the maximum amount that could have been required to be appropriated without voter approval was $338,000,000.

42, Burgos HELD that Chapter 28 created a contractual right to an annual appropriation sufficient to make the payments, BUT that promise was unenforceable only insofar as it exceeded the 1 % cap of the Debt Limitation Clause. According to the Court, “we are not declaring Chapter 78 to be unconstitutional, contrary to the dissent’s suggestion that the majority is ‘striking down; ‘voiding,’ or ‘invalidating’ that statute. Chapter 78 remains in effect, as interpreted, unless the Legislature chooses to modify it.”

43. Thus, Burgos HELD that the contractual promises created by Chapter 78 were not unconstitutional and remained enforceable, except for the contractual promise to make annual budget appropriations of above 1 % of the Budget.

44. Therefore the decision established: A. The promise to appropriate the Annual Required Contribution to each Retirement System that is owed less than the cap in each year is enforceable and supports a judgment against the State, requiring it to make the budget appropriation.  B. Thus, the Debt Limitation and Appropriations-related clauses in the NJ Constitution led the Court to conclude only that, “Chapter 78 cannot constitutionally create a legally binding, enforceable obligation on the State to annually appropriate funds as Chapter 78 purports to require.” C. The contractual right to the funding therefore remains enforceable through a breach of contract suit even if the amount exceeds 1 % and can be collected in the manner of any other civil judgment against the State. The majority decision by Justice LaVecchia held that Chapter 78’s “historic compromise” and the Legislature and Governor’s evinced a dear intent to create an enforceable contractual rightto pension funding. D. The Court agreed with plaintiffs that a “promise was made by the legislative and executive branches when enacting Chapter 78.” The Court concludes that “morally” plaintiffs’ argument is “unassailable.” E. “In sum, the State Constitution simply does not permit Chapter 78’s payment provisions to have any more binding effect than that of a contract that is subject to appropriation.”

47. In addition, the Court only struck down Chapter 78 to the extent that it violated the Debt Limitation Clause by requiring appropriations in such a “sizable amount,” i.e, more than 1 % of the annual state budget.

48. Nothing in the Court’s decision declares the separate promise to pay the Annual Required Contribution unconstitutional.

49. The majority decision emphasized that it was neither striking down nor invalidating Chapter 78. Rather; the Court explained that, “we are not declaring Chapter 78 unconstitutional. .. Chapter 78 remains in effect, as interpreted, unless the Legislature chooses to modify it.” To date, the Legislature has not chosen to amend or repeal Chapter 78.

50. Thus, to the extent that Chapter 78 requires appropriations that are less than 1 % of the annual state budget it remains fully enforceable.

51. To the extent that Chapter 78 requires payment of the Annual Required Contribution it remains fully enforceable.

52. In its decision, but without analysis or comment, the Court conflated the separate appropriations necessary for payment to each of its pension funds, including but not limited to the present plaintiffs, as if they were one large appropriation.

53. Each Fund, however, requires its own individual budget line and appropriation in order to be paid the differing amounts each is owed by the State. The separate appropriations are found in the Interdepartmental Accounts section of the Annual Budget.

54. The Burgos decision unequivocally affirmed that the underlying right of members and beneficiaries to payment of retirement benefits remains intact: We reiterate that there is no question that individual members of the public pension systems are entitled to this delayed part of their compensation upon retirement, but, as stated at the outset, that is not in question in the instant matter before this Court. That said, the State repeatedly asserted at oral argument that it is not walking away from its obligations to. the pension systems and to pay benefits due to retirees.

55. Unless contributions are received to fund the presently unfunded obligations, that promise will at some point in the Mt-very-distant-future become completely illusory.

 

19 responses to this post.

  1. Posted by Tough Love on July 27, 2015 at 12:55 pm

    Quoting excerpts ……

    “18. It was only the promise to make the appropriations that was held to be unenforceable by the Supreme Court.

    19. The annual payment of the annual required contribution is mandatory and ministerial.”

    Considering the recent NJ Supreme Court decision …….

    I heard of “California Dreaming”. THIS is attorney “dreaming”. It will be dismissed, likely with no or minimal Court consideration.

    Reply

    • Posted by Greg Lamon on August 2, 2015 at 12:20 am

      Well, well,it is about time the pension boards woke up to their fiduciary responsibilities and took action to force the recalcitrant state to fund its pension promises as required by actuarial studies. Tough, it is looking like your gleeful prediction that NJ retirees will see their retirement benefits take a major hit, or even disappear is a bit premature. Hold on to your wallet!

      Reply

      • Posted by Tough Love on August 3, 2015 at 1:03 am

        No, it’s ABOUT TIME NJ’s Elected Officials acted responsibly and …. as the NJ Pension Commission proposed …. take whatever action is need to implement those changes, a FREEZE of the Current DB Plans (replaced by a MODEST Cash Balance Plan) and VERY material reductions in active and retiree healthcare benefits.

        Reply

  2. Posted by Javagold on July 27, 2015 at 1:01 pm

    What a bunch of clowns. The things they are arguing about today, 20 years in the making mind you, will look ridiculous what’s what coming around the corner. COLLAPSE.

    Reply

  3. Posted by Anonymous on July 27, 2015 at 1:24 pm

    Instead of focusing efforts on senseless and time consuming litigation their (Unions) energies should be focused on expiditious implementation of P&B reforms including funding via a constitutional amendment. Their actions will result in irreversible damages to ALL of NJ.

    Reply

    • Posted by Tough Love on July 27, 2015 at 1:47 pm

      Taxpayers who believe that the Public Sector Unions will voluntarily give back even 10% of what justifiably SHOULD BE (and needs to be) given back …. are fools.

      It will be forced upon CURRENT (and perhaps retired) Public Sector workers as larger groups of Private Sector taxpayers become better educated as to the enormity of the Public Sector pension/benefit financial “mugging” being perpetrated upon them, and the Tax-increase consequences of non-action …. and without doubt when Plans assets run out (in about 5 years), we hit Pay-Go, and MASSIVE service cuts and/or HUGE tax increases are the only OTHER option.

      Reply

      • Posted by Anonymous on July 27, 2015 at 2:01 pm

        I’m a realist, ok maybe a fool. IF the Governor will step aside from negotiations I believe P&B Commission type reforms can be ushered through with consensus support.

        Reply

        • Posted by Tough Love on July 27, 2015 at 2:18 pm

          Quoting … “I believe P&B Commission type reforms can be ushered through with consensus support.”

          Boy, are you naive.

          Reply

        • Posted by Tough Love on July 27, 2015 at 2:26 pm

          The P&B Commission proposals are EXACTLY whats necessary and fair prospectively (while NOT proposing to reduce the ALSO clearly excessive PAST service accruals).

          But those FUTURE Service cut-proposals are indeed material, ending the outrageous gravy train (prospectively). The Public Sector Unions like to make a HUGE stink when they give back something not even 5% of the value of P&B Commission proposals.

          They’ll NEVER agree. It will need to be FORCED upon them.

          Reply

      • Posted by Anonymous on July 27, 2015 at 3:38 pm

        TL…. Keep trying to convince the same 5 people that the tax payers are becoming more educated. Lol!!!!!
        You’re certainly on your way to a million taxpayer March on Trenton.
        NOBODY but the 5 of your minions care.
        But I do like to see that you’re down to 10% in givebacks.

        Reply

  4. Posted by Anonymous on July 27, 2015 at 2:19 pm

    Considering the recent SC c.78 ruling isn’t this a dangerous course of action by the unions? Might the SC’s ruling of this motion limit the State’s contributions to 1%, which is less than the FY16 recommended appropriation? Are the Unions doing this as a way to save face with their members knowing the ultimate outcome will validate the need for P&B Commission reforms? Probably not as the unions are not that insightful. Idiotic position but how is the 1% calculated, the State combined total ARC, by pension fund, or by pension receipents?

    Reply

  5. Posted by dentss dunnigan on July 27, 2015 at 5:09 pm

    Did I see the amount right …180 billion ? …that’s impossibly

    Reply

  6. This decision WILL be different and in favor of compelling the good Governor to live up to the contract his signed in 2011—–after the 4 billion is invested by the various pension systems I predict the parties will sit down and do what the Commission members recommended.

    Reply

    • Posted by Tough Love on July 27, 2015 at 6:56 pm

      Quoting ….. “after the 4 billion is invested by the various pension systems ”

      “Invested”, really ???

      “BY” the pension systems. really ???

      Don’t you mean STOLEN from the Taxpayers to fund grossly excessive pensions that by EVERY reasonable metric vs their Private Sector counterparts are unnecessary, unjust, unfair to Taxpayers, and unaffordable ?

      Reply

  7. Posted by MJ on July 28, 2015 at 7:10 am

    The honorable thing to do would be to make the reforms as quickly as possible so that publics have time to prepare. If they are counting on the “promise” of generous pensions at age 55, lifetime health benefits, and sick day pay outs, they may want to re-think retiring and better plan to do with less. Of course, there is no honor among thieves (unions and politicians) and the longer there are no reforms the more dire the situation becomes. I would think union members would be screaming and demanding reforms but I guess that isn’t allowed in exchange they get to keep their jobs.

    Reply

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