Nobody should be surprised by the timing or
content of the governor’s Pension and Health Benefit
Study Commission report. Releasing the
report on the day the governor was to give his
annual Budget Message to the NJ State Legislature
gave substance to an otherwise less- than-noteworthy
speech. Releasing the report the day after
Judge Jacobson ruled the governor broke the law
by not making a full pension payment gave the
governor the political ammo he needed to claim
again that he can’t afford to fund the pension obligation without
bankrupting the state.
What was shocking about the Commission Report, and the
governor’s speech, was the depth to which the New Jersey Education
Association (NJEA) had been engaged in negotiations
with the Commission to end pensions as we know them. The
State PBA was aware the NJEA had been meeting with the Commission
for several weeks to discuss its pension. There can be little
debate that the Teacher’s Pension and Annuity Fund (TPAF)
is in financial trouble. TPAF is grossly underfunded as a result of
the state’s failure to make pension contributions (unlike PFRS,
the teacher pension plan is paid exclusively by the State not by
local government) and the 2001 law that increased teachers’
retirement allowance and cut their pension contributions.
Everyone was shocked, however, when the governor boldly
stated that a “deal” had been struck with the NJEA to implement
the recommendations of the Commission referred to as the
“Roadmap.” The NJEA immediately denied a “deal” was in place
to do anything. But a three- page memo from the Governor
and signed by the NJEA and the Commission leadership suggest that this argument may be
more about semantics than the reality of what is being negotiated
behind the scenes. The proposed Commission report and
“Roadmap” would essentially end every public employee’s pension,
including PFRS, and the State PBA immediately went on
offense to keep members out of the NJEA’s “deal.”
The State PBA knew the direction the Commission wanted to
head in. When State PBA President Colligan, Executive Vice President
Kovar and I met before Christmas with Commission leadership,
they were clear that regardless of how healthy PFRS is, it
would be recommending a dramatic break in providing retirement
benefits to public employees. The Commission never did
an analysis of PFRS, nor did it make a distinction about how
PFRS funding is entirely unrelated to the state’s pension deficit.
Despite a professional and engaged debate, we made our opposition
to any pension changes clear and continued meeting with
legislators to get ahead of the release of the report.
The Commission report proposed what we expected from
that discussion. In fact, five recommendations were made to
establish a “hybrid” pension plan for all public employees. The
- Freeze and close existing state and local pension plans.
- Replace pension plans with a new “cash balance” retirement plan (similar to a 401K but with several distinctions to make it less volatile).
- Transfer assets, liabilities and responsibility for old and proposed pension plans to the unions to manage.
- Shift certain pension costs from the state to local governmentsand offset increased local costs by using combined pension “savings” (which means that any money saved from closing PFRS and other funds would be used to offset what the state would have been paying to fund the teacher pension plan).
- Adopt a constitutional amendment to mandate that the state pay off its pension debt but also to eliminate the “nonforfeitable right” to a pension (meaning in part it would abolish the law that says the state can’t cut your pension once you’re on the job).
It shouldn’t need to be said that the State PBA immediately
blasted these proposals and every media outlet in New Jersey
carried a quote from President Colligan outlining that this concept
should exclude PFRS. Legislative leaders were less than
enthusiastic when they read the report. Unlike the rush to pass
Chapter 78, no one is lining up to fast track these recommendations.
There is little surprise that the governor would propose a concept
to close the pension system. What is concerning, however,
is that the “savings” used to justify doing that would be taken
from local government-funded pensions (like PFRS and local
PERS) to offset the state’s pension obligations. Rather than pool
all the pension assets together (as was rumored), this plan
would pool all the “savings” together from these pension cuts.
This certainly punishes PFRS members who pay more for their
pension than any other employee, and the local governments
who have been paying off their pension costs as required by
PFRS actuaries. Once again, the state has caused a crisis but
wants someone else to fix it.
If the NJEA is willing to go along with the Commission’s
“Roadmap,” that is up to the NJEA. Its system and all of their
members’ health benefits come out of the state budget. But
PFRS is far better off financially and getting stronger. Simply put,
the State PBA isn’t willing to carry their anchor in our boat.
This is a debate that is only going to intensify once the final
court decisions are made about the 2015 overdue pension contribution
and next year’s budget is put together. Thankfully, legislators
and the numbers are on our side as the heat is turned up
on pensions once again.