Politics trumps law in pension decision

The disappointing decision of the New Jersey Supreme Court refusing to enforce the provisions of Chapter 78, which provide for mandatory pension contributions by the state, is not just legally incorrect and morally unfair. It is also an abdication of the court’s duty to enforce clear employee rights because of its fear of the political ramifications that might ensue. Of course, making decisions without concern for political consequences is precisely what courts are created and sworn to do – make unpopular rulings which, in the long run, uphold the rule of law. The analysis contained in the Supreme Court’s decision is an unfortunate example of an abdication of its core judicial responsibility.

By now you all know the basic facts. After years of underfunding, Chapter 78 was specifically enacted to require that the state make its required contributions to the pension systems. It created a contract promising that each year the amount to be paid would be ratcheted up in one-seventh increments, meaning the full actuarial contribution would not even be made for seven years. Nonetheless, it was a major improvement to the chronic lack of virtually any funding. The governor made the first two annual payments, but since that time has used his line- item veto to avoid payment of even these limited statutory amounts. On behalf of the NJ State PBA, we sued the governor for his breach of the contractual promise contained in the very law he pushed as the solution to the pension problem.

It bears repeating that this was no ordinary contract entered into by the state. It was a contract and promise created by a statute – an extraordinary action. In fact, because of chronic underfunding of the pension plans, we worked very hard to ensure that Chapter 78 contained language that was both crystal clear and impossible for a court to ignore. Provisions were inserted to make certain that the contributions to be made by the state were not just aspirational – they are an explicit statutory “contract” with each state employee. Moreover, to avoid technical legal defenses, Chapter 78 included language that any pension participant or union could sue the state to enforce that contractual right, and that the state even waived “sovereign immunity” – its defense when we previously sought to enforce the contract right in federal court.

Notwithstanding all the foregoing, the court ruled 5-2 that the legislature – and governor – did not have the legal authority to “create” such a contract, because provisions of the New Jersey Constitution known as the Debt Limitation Clause and the Appropriations Clause prohibit any legislature from requiring a specific monetary payment to be made by future legislatures or the governor without voter approval. In effect, the court held that the state did not have the authority to enter into this contract. While it did not declare the statute unconstitutional, as the governor contended, it effectively declared the component requiring state funding to be legally unenforceable. Of course, the New Jersey Supreme Court has often vacillated on when a particular expenditure constitutes a “bonded debt” which must be subject to voter referendum, and when a particular payment is simply a normal expenditure of government. Here, it is difficult to ignore the logic that paying a pension obligation annually is not a “bonded debt,” but simply the cost of having a pension system at all. And it is worth noting that New Jersey has never failed to make the full payment on any bond it has ever issued for private bondholders, even without such a statute.

The politics, however, trumped logic and fairness. Not surprisingly, the three recent Gov. Christie appointees to the court all voted for reversing Judge Jacobson’s decision in our favor. The two dissenting justices accepted our arguments that there was no inherent contradiction in upholding the Chapter 78’s contractual promise, despite the constitutional provisions. The dissent also pointed out that the state’s seven year phase-in of full contributions was directly tied to the increased pension and health-care contributions you are required to pay. By refusing to invalidate employee contributions under Chapter 78, employees must continue to pay while the governor is off the hook for his end of the bargain. The dissent noted that the majority decision enforcing the statute’s higher employee contributions, while giving the governor a pass on his reciprocal obligation, was nothing short of a “bait and switch.” But the case was effectively lost once the court had split along party lines.

The opinion is particularly galling in that it contains numerous acknowledgements that our position is fundamentally correct; that what is occurring is grossly unfair and will only increase cynicism about government; and that it only digs the pension hole deeper. And, despite the obvious ramifications of the decision, the court continues to contend that all vested pension benefit obligations must be paid by the state – even though it blinds itself to the reality that pension benefits cannot be paid if pension contributions are not made.

What is occurring in New Jersey, unfortunately, differs from several other states precisely because New Jersey does not have a constitutional provision protecting public pensions. In Illinois, for example, there is such a constitutional protection. We had hoped that the statutory language and history of Chapter 78 would be sufficient to convince any court that the payments must nonetheless be made – even without a constitutional amendment or voter approval. After all, the legislature and governor created and entered into this contract – not some errant mid-level bureaucrat. Unfortunately, a majority of the justices did not agree.

So, you now ask, where do we go from here? In the short run, it is the same situation as always – the state is not making its full contribution, the amount of unfunded liability is increasing and everyone pays lip service to the theory that the benefits will still be paid. And fortunately, the local component of PFRS, the system in which the majority of law enforcement officers participate, is still relatively well-funded. The reality, however, is that unless this, or a future legislature and governor, promptly start making all the payments, whether voluntarily or through a constitutional amendment, the Court’s promise that all vested benefits will ultimately be paid in full will remain more lip service than law.