COLA Case Miscellany

The New Jersey Supreme Court will consider whether pensioners should get their cost-of-living-adjustments (COLAs) back but the big questions are when and how much is at stake?

Court procedure is a mystery to me* so when I look at the NJ Supreme Court calendar I see Berg v. Christie near the top of the page with about 70 other cases on that list still waiting to heard.  Glancing over the other cases, which go as far back as 2008, it seems like it takes about ten months to get to trial and another three months for a decision.

This is problematic here because if the courts do decide that retirees were entitled to their COLAs going back to 2011 there could be many billions of dollars owing immediately.  A northjersey.com story on the case ended with:

Ouslander estimated that the retirees in the case are owed a combined $1.1 billion to $1.2 billion since 2011 because of the freeze.

A number I agree with but it must be understood that because of the low-interest rate environment COLA increases would have been historically low and that liability will rise rapidly.  I predict it will be $5 billion** when this case plays out in 2017 and as for the long-term cost njspotlight pegged it at $74 billion which is as good a number as any (by which I mean absolutely useless since these plans have no long-term).

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* As are most things where I have no direct experience and I suspect the reality is much seamier than what the public is manipulated to believe happens.  For example here is Lucie Arnaz explaining to Billy Jack how a law gets enacted:
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A scene that the Schoolhouse Rock folks picked up on (omitting the part about lobbyists and unmarked envelopes of cash):
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** With that substantial amount of money involved there may be some of you current and future retirees who would want to chip in to help the plaintiffs.  If so, one of them set up a gofundme account (another mystery to me).

16 responses to this post.

  1. Posted by Anonymous on August 2, 2015 at 10:48 am

    John,

    I’m the individual who retired PERS and will be relocating for employment in Florida.

    Picking up where we left off on your previous post regarding FRS versus NJ P&B. The ~ pension accrual rate isn’t significantly different, 1.8 for NJ and 1.6 for FL. Member contribution rates are 7.5% for NJ and now 3% for FL. NJ COLA suspended with 2011 reforms and FL suspended future COLA accruals effective 2011 reforms but maintained a 3% COLA on pension accruals earned to date.

    FL health benefits more in line with gold coverage and they’ve had active and retired premium share, not sure how long.

    It seems NJ’s mess is a function of higher salary compensation pension benefit calculation, the ability to retire earlier with less of a reduction, health benefits cost/coverage, and of course years of inadequate employer contributions.

    So instead of recreating the wheel why doesn’t NJ look at the top 10% of publicly funded pensions and model a hybrid reform based of what’s working for those States?

    Maybe that result is the P&B Commission recommendations?

    Reply

    • Posted by Tough Love on August 3, 2015 at 1:14 am

      Quoting …

      “So instead of recreating the wheel why doesn’t NJ look at the top 10% of publicly funded pensions and model a hybrid reform based of what’s working for those States? ”

      Your suggestion is still comparing one “Public” Sector group to another “Public” Sector group. ALL of them get pensions multiples (typically 3x to 4x) greater than “Private” Sector Taxpayer retiring at the SAME age with the SAME pay, and the SAME years of service ….. which is the ROOT CAUSE of the problem.

      You’re NOT “special;” and deserving of a better deal on the Taxpayers’ dime.
      ———————————————————————
      The NJ Pension Commission indeed addressed the ROOT CAUSE of NJ’s pension & benefit problem ….. grossly excessive generosity.

      It recommended that the current DB Pension Plans be FROZEN (zero future growth) for all CURRENT worjkers, and replaced with a “modest” Cash Balance Pension Plan (functionally similar to a 401K plan common in the Private Sector). In addition, it recommended very material reductions in active worker and retiree healthcare benefits, with the saving used to pay down the unfunded liability for PAST Service pension accruals.

      Reply

      • Posted by Anonymous on August 3, 2015 at 6:18 am

        Lol!! TL…… 99% of all your posts read exactly the same. My lord it’s so boring and repetitive already.

        Reply

        • Posted by Tough Love on August 3, 2015 at 10:47 am

          And all true ………..

          Reply

          • Posted by Anonymous on August 3, 2015 at 5:12 pm

            Unfortunately, many of the posts put forth 2 basic points, both of which are mere venting, leading to a dead end. The pensions cannot be dismissed. And employees paying their share does not, by itself, justify the funding of the accrued liability. We tend to get lost in the details, but the key point is missed by the failure to engage in a search for real solutions. The key to long term solution which is fair to employees and taxpayers involves the transfer to 401ks in an equitable fashion. It needs to be restated for those just joinng the chat.

          • Posted by Tough Love on August 3, 2015 at 6:26 pm

            Quoting Anon ,,,, The key to long term solution which is fair to employees and taxpayers involves the transfer to 401ks in an equitable fashion. ”

            I agree, as long as it includes ALL CURRENT State and Local employees and takes place forthwith …. as every day we delay digs the financial hole NJ is in even deeper.

            Also, the current “Platinum+” Public Sector active worker and retiree healthcare benefits must also be reduced ALL THE WAY down to the level typically granted Private Sector workers.

      • Posted by Anonymous on August 3, 2015 at 8:00 am

        Half truth, other States have less generous better funded DBP and lower taxes so it can’t be just the P&B causing NJ’s problems.

        Reply

        • Posted by Tough Love on August 3, 2015 at 10:57 am

          Even a ludicrously generous Pension will stay near fully funded if a PROPERLY calculated ARC (with reasonably conservative assumptions and methodology is employed) ….. the arc being A FUNCTION OF and PROPORTIONAL TO the Plan’s generosity …. is consistently paid.

          Doing so just means that the Taxpayers are paying FAR FAR more than what is necessary (to attract and retain a qualified workforce, what is just, what is fair, and what is affordable) …. and MULTIPLES greater than what similarly situated (in wages, age at retirement, and years of service) Private Sector worker gets in retirements from his/her employer.

          Reply

      • Posted by Anonymous on August 3, 2015 at 8:32 am

        Florida a longstanding red State more recently leaning probably due to all of the northern transplants. Are you saying their, according to John, in the top 10% of publicly funded pensions at 87% is too generous? Really? Republican controlled Governor and legislature is putting it to the TAXPAYERS to benefit public pension. H*ll no! Their lower salaries (and lower cost of living, especially housing prices), less generous benefit calculation, and lower health benefits coverage with premium shares are all contributing factors to their funds stability. But without adequate and consistent funding none of the above would have made a damn bit of difference and they’d be in the same mess NJ is in. No our hole has been dug from decades of reform and funding neglect from both parties. Did I mention Florida has a DROP program as well, I’m sure you know what that is TL?

        Reply

        • Posted by Tough Love on August 3, 2015 at 11:16 am

          Sounds like you are referring to John’s response to you in a prior Blog-post as follows:

          “The latest valuation I found for the FRS was July 1, 2012: ….. $18 billion unfunded and 87% funded. Bad by most pension standards but in the top 10% for public plans. ”

          As I have stated before (accurately … for the doubters), Plan “generosity” and “funding” are too different things and even a LUDICROUSLY generous Plan can kept at near full-funding … read my above comment on this

          With 85% of all workers employed in the PRIVATE Sector, it is THAT Sector where spirited COMPETITION among employers for talent rightfully determines “market rate compensation” ….. NOT the Public Sector (employing just 15% of the total workforce) where compensation distortions are rampant via collusion between the Public Sector Unions and our Elected Officials, and where (unlike in the Private Sector ) Elected Officials (ofter owing their jobs to Public Sector Union campaign contributions and election support) can promise more than what is affordable and force a betrayed 3-rd party (the Taxpayers) to foot the bill.

          Public Sector Plan “generosity” is rightfully determined by comparison to what PRIVATE Sector workers receive in jobs with comparable risks, educational and experience requirements, knowledge, and skill sets …… not other over-compensated PUBLIC Sector workers.

          Reply

          • Posted by S Moderation Douglas on August 3, 2015 at 11:26 am

            LOL!

            “See my long comment above.”

          • Posted by Anonymous on August 3, 2015 at 11:34 am

            You didn’t specifically address my point, public unions in Florida – really?

          • Posted by Anonymous on August 3, 2015 at 12:05 pm

            TL sounds like you’re alleging a widespread P&B political (both parties) conspiracy with or without union collusion?

          • Posted by Tough Love on August 3, 2015 at 1:35 pm

            Anon, It’s easy easy to understand …….. the politicians (our Elected Officials) trade their favorable votes on Public Sector employee pay, pensions, and benefits in exchange for campaign contributions and election support.

            In any other venue, such quid-pro quo activities would be considered bribe giving and receiving, and criminal racketeering.

  2. Supreme Court is the final appellate court in NJ. 1 hearing + briefs and a decision by next june. Value of cola over time is about 1/2 the present value of the pension. Like the earlier case, determination likely to be political

    Reply

    • Posted by Tough Love on August 3, 2015 at 1:51 pm

      NJ’s COLA provision call for a 1 year delay before the first COLA increase and pay only 60% of the CPI increase….. less generous than many other STATES, but of course more than the ZERO COLA increase common in almost ALL Private Sector Plans.

      The value of NJ’s the COLA provision varies with the age at retirement, with it’s value greatest at the youngest retirement ages (i.e., for Police). For the typical ages at which Public Sector workers retire, adding NJ’s COLA provision (to an otherwise identical Plan w/o COLA) increases it’s “value at retirement” by an amount ranging from 1/5 to 1/3.

      Reply

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