Atlantic city is broke with a reported budget deficit of $100 million, debt of $550 million, and the governing body is currently debating whether to make their next bond payment. You would think the first step to recovery would be to restructure some of that debt to future years but in attacking the poster-issue of Atlantic City’s presumed profligacy, pensions for lifeguards, New Jersey legislators have thrown them another anchor.
The text of S2085 is now out and it proposes (emphasis added):
(1) The governing body of a municipality that has established a pension fund for life guards pursuant to article 3 of chapter 13 of Title 43 of the Revised Statutes (C.43:13-23 through 43:13-29) may adopt an ordinance directing that the provisions of that article shall not apply to any person becoming a member of the life guard force subsequent to the passage of such ordinance.
(2) The governing body of a municipality that has established a pension fund for life guards pursuant to article 3 of chapter 13 of Title 43 of the Revised Statutes (C.43:13-23 through 43:13-29) may adopt an ordinance terminating its pension fund for life guards. Upon the termination of the pension fund, the rights of all members of the fund to benefits accrued to the date of the termination, to the extent then funded, are non-forfeitable. The termination and distribution of the corpus and income from the pension fund shall conform to the required termination and distribution provisions of the federal Internal Revenue Code (IRC) and the regulations issued by the United States Department of the Treasury under that Code.
The fund is pay-go as the 4%-of-salary contributions made by active lifeguards are not enough to cover the $1 million being paid out annually to retirees so that ‘to the extent funded’ line might be interpreted by some future court as meaning nothing is due upon termination since nothing was funded.
However, if it was intended that IRC termination rules and regulations apply, then what S2085 will do for Atlantic City is take away that $1 million annual contribution amount and replace it with a requirement to to come up with the full $30 million* immediately to settle liabilities (government plans not being covered by PBGC) either by paying inflated lump sums at 417(e)(3) rates or by purchasing annuities for all participants.
* Estimated settlement value for $1 million being paid out annually to fairly young retirees plus benefits accrued by those not yet retired.