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.