Dodgier Logic Than Math on NJ Public Pensions

Robert D. Klausner, an attorney and author specializing in retirement law, wrote an njspotlight opinion piece criticizing Governor Chris Christie for the pension debt his irresponsibility supposedly foisted on future generations which starts off with some dodgy math:

After Christie is long gone from the State House, taxpayers will have to pay $3 for every $1 he skipped in pension payments.

The only way this 3 for 1 ratio makes sense is if the $1 not put in today would, at 7.9% interest, be paid 15 years from now (1.079^15 = 3.12). Hardly a reasonable presumption though it is Mr. Klausner’s argument from logic that is even more untenable.

In the 2015 case Burgos v. State of New Jersey, the Supreme Court ruled that the state’s current pension obligations must be paid. There is no getting around the bill; it must be paid. Pensions are deferred compensation that has been earned, and no amount of political spin will erase the bill. The justices also ruled that employees have a contractual right to receive their pensions. The reason the Christie administration hailed the decision as a victory is because the court ruled that the constitution’s debt-limitations clause limited the court’s ability to extract full payments immediately. This got Christie off the hook, but not the state. The fact remains that in the long run the debt must be paid.

This may have been true had we not had another court case in 2016 (Berg. v. Christie) that said full benefits (in this case cost-of-living-adjustments on pensions) did not have to be paid.

So this is where we stand legally as to public pensions in New Jersey:

  • Burgos: Full pension contributions do not need to be made.
  • Berg: Full pension payments do not need to be made.

Flash forward 15 years when that $1 not deposited today on account of Burgos shows an outstanding balance of $3 and ask yourself:

  • If there is no requirement to pay $1 today then why would there be a requirement to pay $3 in 15 years?
  • If all the pension money is gone (in part due to Burgos) then (on account of Berg) why do benefits in excess of what is politically feasible have to be paid?

18 responses to this post.

  1. These are the seventy-billion-dollar questions. Bonus Question #3: What is ‘politically feasible’ likely to look like X years in the future?

    Reply

    • Posted by dentss dunnigan on December 23, 2016 at 11:31 am

      My bet is their will be a lot less working people around that care ….

      Reply

    • Posted by Anonymous on December 23, 2016 at 11:32 am

      And the multi trillion dollar question on ALL Fed pensions? NJ and other States are the tip of the iceberg. When the ship sinks we all go down, in some way or another!

      Reply

  2. Posted by boscoe on December 23, 2016 at 12:03 pm

    Disagree with your interpretation of the Berg decision. Berg dealt strictly with whether COLAs were a contractual obligation binding on future legislatures. Supreme Court said no, going into considerable detail in distinguishing COLA statute from P.L.1997, c.113, which created “non-forfeitable” right to receive pension. The court did not rule on the constitutionality of the Whitman-era law, and has been avoiding it like the plague ever since. Your interpretation that Berg’s ruling on COLAs somehow means that “full pension payments do not need to be made” is premature insofar as it applies to the base pension statutes.

    My guess is that this will be in front of the Supreme Court in not too many years, and they may very well rule as you suggest. But it will not be based on the reasoning in Berg unless it is a very tortured decision.

    The ultimate reality is exactly as noted. New Jersey and other states will not be able to pay pensions at the promised rate regardless of what the courts rule. That is the ultimate deciding point.

    Reply

  3. Even if the NJ Supreme Court never allows base pensions to be cut, post-retirement health care has no such legal protections.

    The deeper NJ gets into the economic-budgetary hole, the more pressure there will be to cut health care. At a certain point, more Democrats will admit that the health care is too expensive and needs to be scaled back.

    If the US Supreme Court takes up the Friedrichs case again and makes the whole country right-to-work for the public sector, NJ’s public sector unions will be weakened and lose their ability to dictate to the Democratic Party as well.

    Reply

    • It’s really a question of political will. If the NJ body politic decides it wants to not pay the pensions, then it won’t. Or maybe it’ll “pay” the pensions, but introduce a “public pensions tax” withheld at-source of say 90% of the amount over $25K.

      Capital gains is treated as ‘special’ income and therefore taxed in ‘special’ ways. I see no impediment to also treating public pension income as ‘special’, if the public decides it doesn’t want to pay but is repeatedly challenged by the courts…

      Reply

  4. Posted by Eric on December 23, 2016 at 4:21 pm

    John:
    Klausner knows better. Check his past. You will be surprised. He also knows about modifications.
    I agree, to a great extent, but not completely, with boscoe above.
    I will not publicly explain my position in detail in case my comments may give rise to information later used to financially “screw” some people.
    Regarding post-retirement health care benefits, all the more reason for single payer.
    Almost every state is now imploding in this financial category.
    This is one reason why Bernie beat Hillary necessitating the fraud launched by the DNC.
    Eric

    Reply

  5. Posted by George on December 23, 2016 at 6:21 pm

    This might end up being relevant to NJ.

    ‘California Rule’ Case Could Bring National Pension Ripples

    An appellate court ruled unanimously in August that the Marin County Employees’ Retirement Association was free to modify the pension formula to reduce unearned benefits for current employees, a decision that flies in the face of the state Supreme Court’s 1955 ruling granting employees the right to continue earning pension benefits throughout their careers that are at least as good as those offered when they were hired.

    http://www.bondbuyer.com/news/regionalnews/california-rule-case-could-bring-national-pension-ripples-1121013-1.html

    If COLAS can be eliminated prospectively, why not retrospectively?

    If the California rule can reduce unearned benefits, is it a stretch to believe earned but perennially unfunded can be reduced? Maybe there is a statute of limitations on how long a debt unpaid can still be collected. Can people today be required to honor unfunded liabilities voted into law decades ago?

    Reply

    • Actually in NJ COLAs were eliminated retrospectively. All those retirees had the promise of COLAs not only when they were hired but most had it when they retired. NJ is making up its own rules with arbitrary benefit cuts being the a foundation.

      Reply

      • Posted by Anonymous on December 24, 2016 at 6:52 am

        Is retrospective the right word? Any COLAs “earned”as of June 30, 2011 remained intact (ie retirees continue to receive their COLAs accrued as of c.78 P.L. 2011 effective date)?

        Reply

  6. Posted by Eric on December 23, 2016 at 6:51 pm

    George:
    Each state law is unique. Some states offer greater protections than others. You have to read ch. 78 with an “open mind” and not a predetermined conclusion.
    California law is not NJ law.
    Again, I will not offer my thoughts, since they may be wrong as viewed by our esteemed NJ Supreme Court, or they may be incorporated into a way to “screw” people financially.
    Perhaps we should move onward.
    Eric

    Reply

  7. Posted by Eric on December 23, 2016 at 10:06 pm

    John:
    I agree with you about the cost of living adjustments. For those who retired prior to the law having been changed, it was grossly unfair. Why? The statutory law, case law, and the employee handbooks all guaranteed retirees cost of living adjustments. Those people retired in reliance placed upon the existing law. The reliance was justifiably placed. Even the Appellate Division, of the Superior Court, agreed that this class of retirees had retired with the expectation of cost of living adjustments in their retirements. Some were paying escalating costs in medical care, and relied upon the cost of living adjustments to assist by helping to defray these rising expenses.
    Associate Justice Barry Albin asked the Assistant Attorney General how could people plan their lives when they had retired before the law had been changed which was then retroactively applied to them? The proverbial “rug” had been pulled out from beneath them. He also asked if a cost of living adjustment were not a benefit since the “benefits (plural) program could not be reduced.” If it ie, the cost of living adjustment, were not a benefit, what was it? I hear the sounds of crickets.
    It seems that our corrupt court system in NJ is at its very worst, but I am sure that the bar will be lowered quite substantially yet again, when back room deals manifest even further corruption, and bastardization of the semblance of any remaining law.
    Eric

    Reply

    • Posted by S Moderation Douglas on December 27, 2016 at 5:14 pm

      In the near future, those people will probably lose much more than COLA, because the money just isn’t there. That’s grossly unfair also.

      Reply

  8. Posted by Anonymous on December 24, 2016 at 7:13 am

    This situation is appalling and ridiculous.

    The previous pension reforms clearly missed their mark. Cutting COLAs and now focusing on the “base” pension allowance. All the while health benefits coverage is prime for the picking. It’s a no brainer.

    Based on the platinum coverage premiums currently available change all retirees to bronze coverage with step up plans available at 100℅ retiree premium share. All savings dedicated to fund the pension deficit.

    Do this now because their is no or minimal legal ramifications. This is something that should and can be done during Christie’s tenure.

    Then leave the more tenuous pension reforms for the next Governor.

    Reply

  9. Posted by steve on December 24, 2016 at 8:08 am

    Gentlemen and or Madams-I am neither an accountant nor lawyer, but I have enjoyed and learned a lot from your blog and comments-being the” can” that has been kicked down the road–All I can say is thank you and “are there no work houses” Merry Christmas and a happy new year to all

    Reply

  10. Posted by Anonymous on December 24, 2016 at 9:37 pm

    Twas the night before Christmas
    And all through the State Hose
    Not a pension fund was solvent
    Not even the Legislature’s
    The Appropriation Act was Law
    By the Governor’s swift pen
    Especially the red one
    With LIV power times ten
    As real reforms stay stalled
    Members, retirees, and taxpayers
    Take the fall

    Wishing you all a deficit New Year!

    Reply

  11. Posted by Mitch on December 26, 2016 at 8:57 am

    We will take the health benefits savings to bolster pensions, legalized gambling will help the elderly, the gas tax will pay for better roads etc… how many times can we be fooled? The chapter 78 pension reforms encouraged people to retire early, weakening the system. The higher employee contributions were used to artificially lower the pension liability, lowering the employer contribution rate, further weakening the system. The increased employee healthcare contributions were eaten alive by four years of cost increases. There will be no pension adjustments before a new governor is elected and people realize, right or wrong, we are all in this together. Christie did not kick the can down the road. He tried to blow up the road. He could have signed legislation capping sick/vacation payouts at 15k. He wanted zero and would not compromise. You will read about a public employee in 25 years retiring with a 400k payout. It could have been stopped. He made a bad situation worse. He made it “us vs. them”. It was always about him.

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: