In an unusual display of bipartisan support Senate President Stephen M. Sweeney (D-West Deptford) and Senate Republican Leader Tom Kean (R-Westfield) agree that the state needs a constitutional guarantee that future lawmakers and governors will not shirk their annual pension obligations.
Highlighting the seriousness of the problem, on February 25 the State Treasury provided updated information for 2009: “The Division of Pensions and Benefits today released reports that estimate unfunded liabilities of the state pension system rose $12 billion to $46 billion from June 30, 2008, to June 30, 2009. The market value of the pension funds plunged by $17 billion to $66 billion during the same period.”
There has been a discussion of which governors and parties have been responsible for the underfunding. Below according to the February 2010 Pew Report: The Trillion Dollar Gap: “In New Jersey, with a pension system that was about 106 percent funded in 1998, the state legislature began to dramatically underfund its annual contributions. Between 2000 and 2006, the state never exceeded 30 percent of the required contribution. By 2008, the total funding level had fallen below 73 percent. Recently defeated Governor Jon Corzine (D) emphasized the need to improve the state’s pension situation and increased funding in 2007 and 2008, but during the financial crisis, the resolve to do a better job of supporting the pension system all but vanished. According to Frederick Beaver, director of the New Jersey Division of Pensions and Benefits, New Jersey was supposed to pay about $2.3 billion in 2009 but contributed just $105 million. For 2010, the amount required was about $2.5 billion, but just $150 million was budgeted.” Our peeved Governor Christie is currently refusing to pay the $150 million.
The political difficulties are formidable and painful. The legislature is naturally hesitant to antagonize government employees who, at the least, vote in elections and, at worst, can turn into powerful political foes. Hence the Senators joined arms in voting for the recent package, with nary a single nay vote lest those in favor be targeted in primaries and elections. There also is a question of fairness. Should employees who have been counting on retirement benefits and who have considered them to be part of ongoing compensation suddenly discover that those benefits have disappeared? Hence, with the recent Senate package, the proposed reforms are directed only at new employees, with the exception of the added 1.5% health benefit levy.
As Scott Weingart pointed out in a recent diary, The Police State, Governor Christie has not asked all unions to share in the burden. Nor have state authorities so far been included in the pension reforms. Other approaches, some of which have been implemented to varying degrees, include 1) reducing benefits further or increasing the retirement age further; 2) sharing the risk with employees; 3) increasing employee contributions; 4) ending “double-dipping,” and 5) improving governance and investment oversight.
Nonetheless, the bottom line problem remains: New Jersey is 49th among States states that most recently paid the highest percentage of their annual required contribution for pension plans. Having drastically underfunded the Plan, we now find ourselves owing far more as a result, and if we postpone paying the bill the debt will increase even more significantly. Such will leave our state in worse shape and make it ever more difficult to meet our education, health care and other pressing needs. Our governor’s threat to withhold the meagre $150 million current payment is reprehensible. What would be worse is if we do not quickly return to making the full annual payment and continue to do so in succeeding years.