New Jersey Pension Reform – 2020

When people ignorant of the workings of defined benefit plans propose reforms to save money they come up with SCR170 in the last legislative session and SCR38 this time which creates a cash balance plan for new participants and those with less than 5 years of service (who are not judges, state police, or police & firemen).

What needs to be understood is that a cash balance plan IS a defined benefit plan with funding rules and investment risk shouldered by the plan sponsor and can be just as expensive as a plan with a benefit formula based on a percentage of salary and service. For example…….

The law proposes that participants…

…shall make contributions to, and shall receive benefits from, that fund or system based on compensation received up to $40,000 annually. If the compensation of the officer or employee exceeds $40,000 annually, the officer or employee shall also be enrolled in a cash balance defined benefit plan and shall be a member for the purpose of the contributions and benefits of that plan only for the amount of compensation in excess of $40,000 annually. The cash balance defined benefit plan shall be a plan that provides an employee with a retirement benefit from an individual account that has a guaranteed rate of return on the contributions made to the account by the employee, and the contributions that may be made by the employer, but does not require the employee to manage the investment of that account.

Therein lies the conundrum. The benefit under the new cash balance plan is not defined which is sine qua non for a defined benefit plan (hence the name).

Take the example of a teacher hired 1/1/2021 at age 30 making $60,000 annually. They would be contributing 7.5% of that salary into the retirement system, presumably $3,000 (7.5% of $40,000) into the current Defined Benefit (DB) plan and $1,500 (7.5% of the $20,000 above the $40,000) into the Cash Balance (CB) plan.

For that money, according to the TPAF handbook, the benefit provided in the DB plan based on an average salary of $40,000 would be $23,333 annually at retirement age 65 ($40,000 x 35 / 60).  Under the current formula which defines average pay as a 5-year average and assuming 2% annual salary increases the benefit at retirement age 65 would be $65,959 ($113,072 x 35 / 60). The difference comes to $42,626.

In a CB plan you get a Pay Credit which is either a dollar amount or a percentage of salary. Assuming the Pay Credit in this new CB Plan will be 7.5% of pay in excess of $40,000 and an Interest Credit of 5% we get a hypothetical balance at age 65 of $256,548. Assuming an annuity factor of 12.6% at age 65 (AMT19 mortality table and 5% interest) that translates into an annual benefit of $20,361 which is about half of the $42,646 savings. Now suppose the state does define their portion of the benefit in the CB plan as equivalent to what the employees put in (a likely compromise of collective bargaining). That means another $20,361 in annual benefits under the CB plan and the purported savings, as with practically every reform thought up by this crew, disappear (as planned).


SCR38 Proposes constitutional amendment to specify type of pension for new public employees and employees with less than five years of service.
State Government, Wagering, Tourism & Historic Preservation


Last Session Bill Number: SCR170 Sweeney, Stephen M.   as Primary Sponsor

1/14/2020 Introduced in the Senate, Referred to Senate State Government, Wagering, Tourism & Historic Preservation Committee

Introduced – – 6 pages PDF Format    HTML Format


16 responses to this post.

  1. See TL, no cost of living adjustment has been put into the wording of this bill. A newly hired teacher would get about $2,000 a month in the 2060’s. Probably about $1,200 or so a month in todays dollars. This will pass. The only change I see happening is that they will truly make it for new hires only.
    Some teachers may stay for various reasons. Money will not be one of them.


    • Posted by NJ2AZ on February 14, 2020 at 6:51 pm

      Good sir, i admire your optimism that $2000 in the 2060s would compare to $1200 today 🙂


      • lol. Ya never know. I’m being conservative. More like $750 a month now.


      • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on February 15, 2020 at 11:51 pm

        Good sir, i admire your optimism that $2000 in the 2060s would compare to $1200 today 🙂
        Between our trillion dollar+++ budget deficits, which we have been running non-stop since 1980 (40 f&*king years), and our current $23++ TRILLION national debt (climbing at 5%-10%/year), $1 in 2060 will be worth a nickel, if that.


    • Posted by Tough Love on February 14, 2020 at 10:00 pm

      El gaupo,

      And what COLA is it of which you speak …… the COLA on the $16K that the average SS recipient gets ? I’d love to see the COLAs on all public Sector worker pensions limited to a COLA increase ONLY on the first $XX of annual payment, where $xx is the average SS payment…… after of course subtracting any COLAs they DO GET from SS payments

      lol ……… if would it WAS done everywhere, I wouldn’t even mind reinstating NJ’s COLA UP TO that limit.

      You do know that PRIVATE Sector single-employer Corporate-sponsored Plans almost never include COLAs.


  2. Honestly, if they are going through all of the drama to push through these changes, why not just get rid of DB plans all together? It’s not the new public workers that are killing the state, it’s the hoardes of public retirees now and the soon to come retirees…so what am I missing?


    • That the ones running this state don’t want real reforms so they throw out these diversionary reshuffles.


    • Whoa??? That’s exactly why we got S5 signed. Lol. Geez MJ. Your po-po’s fund isn’t nearly as bad.


      • Posted by Tough Love on February 15, 2020 at 9:23 am

        And which is exactly why S5 needs to be reversed ………. and all it would take is a new law.

        Perhaps a whole lot of Citizen-posted videos of our $1,000/day construction-site-gig police sitting in their patrol cars on their cells phones for hours on end might encourage NJ’s betrayed and beleaguered Citizens to wake-up and demand that (a reversal of S5) and the many other obvious DB pension & benefits changes that are so appropriate, justified, and necessary.


        • With the current anti police climate among a sizeable minority of people and a sizeable minority of politicians that quite candidly has nothing to do with my pension or benifits, the “beleaguered” taxpayers who do support the police, (still the majority of people—law and order) have no appetite to roll back any benifits for the police. That’s why S5 had absolutely no resistance being passed.
          Most, like MJ, thought that Christie never should have fucked with us. We saw what happened in some of the urban areas when he did. Now it is the other side that thinks we are fascists and racists. Lol.


          • Posted by Tough Love on February 15, 2020 at 11:01 am

            The people who “hate police” are mostly criminals, mislead, or uninformed, but that has nothing to do with advocating to put an end to the ludicrous pension & benefits that NJ Police have been granted.

            And thank goodness for former Gov. Christie. NOBODY but he could have pulled-off the long (and ongoing) suspension of NJ Pension COLAs.

        • And by the way Einstien, there are already plenty of citizen posted videos of the men and women in blue just trying to do our job.
          If I was a betting man, and I am, I would bet that S5 is here to stay for quite some time. Think years if not decades. I will long retired before that law is repealed. If it ever is.
          You should really quit whining abs out what I get. You sound like PS Drone who can’t seem to make it here in the big NJ🤷‍♂️
          TL appears to be able to along with MJ. So I’m gonna say that for you it’s not an issue if $$ that you don’t have. It’s an issue of $$ that you wanna keep. Hmmm….just like me. Therefore, it is better for you mental health and blood pressure if we agree to disagree on that. Live and let live. It ain’t changing for an almost old timer like me.


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