Pension Reform Act Fast-Tracked in NJ

James M. Davis worked for the city of Bayonne until June 30, 2014.  According to the PFRS handbook with a salary of $175,441 and over 25 years of service he should have started getting an annual pension of about $119,300 as of July 1, 2014 but, as it turns out, on July 1, 2014 he got a new job as the mayor of Bayonne at an annual salary of $72,000 which precludes him from getting his PFRS pension under a 2012 pension reform law.

As it happens this Monday S2789 “Volunteers in Public Service Pension Reform Act” put forward by Brian Stack and Nicholas Sacco (both D-Hudson) was introduced:

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Why are New Jersey politicians so corrupt?

With corruption charges likely to be filed against a sitting U.S. Senator from New Jersey, Yahoo News puts forth five explanations for how we got to be the Soprano State.  They mostly got it wrong – the reasons not the conclusion.

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Proofing Propaganda

Politicians throw out whatever sounds palatable at the time and to the audience they seek to either convince or placate.  But when it comes to a situation where there is nothing to brag about the truth needs to be massaged though rarely to the level of absurdity found in the New Jersey Budget Summary for the 7/1/15 – 6/30/16 tax year. For example:
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CF11: Conclusion

The Christie-Freeze roadmap to pension reform in New Jersey got the destination right (get rid of defined benefit plans since the political/actuarial cabal here undermines funding) but their directions take you over impassable terrain:

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CF10: Why an Implementation Task Force

Page 13 of the Roadmap suggests the establishment of an Implementation Task Force for the Christie-Freeze plan:

In the course of the Commission’s work, it has learned that getting the details right in defining the terms of health benefits plans and the provisions of new retirement programs, coordinating them with each other, and managing the transition from existing programs are major technical undertakings. As such, they cannot be the responsibility of an appointed Commission with limited resources and a limited time in which to act. For this reason, the Commission recommends that the Governor establish an Implementation Task Force to assume this responsibility and that the Task Force have all the resources necessary, including staff and legal and actuarial support, to address these complex implementation and transition issues.

Why is it that the New Jersey legislature can’t take up the implementation part now that they have a roadmap?  Two reasons….

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CF9: Who Pays For All This

Page 11 of the Roadmap outlines the panel’s conception  of where the state will get the money to pay off that $180 billion in pension and health benefit liabilities:

…because local health benefits costs are so high, even moderate reforms would result in huge local savings. If aggregated, these savings could permit a higher overall level of post-reform benefits and more equitable State/local allocation of benefit obligations at no additional cost to local taxpayers. In contrast, as illustrated in Table IX in the Implementation Issues section of this Report, a State-level-only reform would generate a need for over $1.5 billion in new revenue at the State level. Given the dire need, the extent to which State funds already play a significant role in funding local benefits, and the fact that local savings would not exist but for statutory and constitutional reforms intended to address the State-level crisis, the Commission believes that it is appropriate to dedicate these local savings to help close the State and local pension funding gaps. At the same time, the Commission is sensitive to the existing burdens on municipalities and believes that the local impact of this approach should be limited to aggregating local savings for use in funding the pension deficit. As a result, this reform would be cost-neutral to local governments.

So how much was the state thinking of offloading?

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CF8: The New Plan

Page 10 of the Roadmap outlines the panel’s conception of the benefits that it believes the state can afford:

Obviously, to be an effective reform, the new plans must also cost less going forward than the old plans would. As a starting point, the Commission has assumed that the employer and employee contributions would each be 4% of salary, with 8% employer and employee contributions for employees who, like many firefighters and police officers, do not participate in Social Security. Based on a total State/local government payroll of $26.637 billion, the Commission estimates the employer cost of the new plans would be $1.23 billion. The Commission believes that this is an affordable initial baseline for contributions, subject to augmentation in the event that quantification of costs and savings establishes the affordability of a higher level of employer contributions.

But what would that mean in real money for, let’s say, a public employee retiring after 25 years of service at a final salary of $100,000?

Below we compare what this retiree would get under the current plan formula* and then what they would have gotten had the cash balance plan being pushed been in place instead during their working lifetime under both the PERS and PFRS plans.

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