Pew Research Center in a report issued this month, The Trillion Dollar Gap, points out that such is the gap at the end of Fiscal Year 2008 between the monies states have set aside to pay for employee’s retirement benefits and the price tag of those promises. Reducing the gap entails spending funds not available for health, education and important needs, and ongoing gaps could require higher taxes.
Forty states were classified as needing improvement, Here is what Pew says about New Jersey:“New Jersey’s management of its long-term pension liability is cause for serious concern and the state needs to improve how it handles its retiree health care and other benefit obligations. New Jersey had a $7.5 billion pension surplus in 2000, but years of failing to meet the actuarially required contribution led to an unfunded liability of $34 billion in 2008. This has left the state’s pension plans with 73 percent of the assets needed, below the 80 percent benchmark that the U.S. Government Accountability Office says is preferred by experts.”
“Meanwhile, New Jersey faces a $68.9 billion long-term liability for retiree health care and other benefits- one of the largest of any state-but has not set aside any assets to cover that obligation.”
In 2008 and in the Senate’s package of bills this week New Jersey has taken steps to reduce the gap. On thursday the Assembly is expected to introduce its version of the bills.
Nonetheless, New Jersey’s position of having 73% of the assets needed is in contrast to the 84% average for all states. Hence the Senate will hold hold a public hearing Monday on a constitutional amendment bill that would bind the state to making its full payment to the pension fund.
The bill which voters would have to approve requires the state and political subdivisions “to pay each year the full amount of the contribution it is required to make to any defined benefit pension plan operated by the State for public employees.” It further “requires the contribution to include the normal contribution and the unfunded accrued liability contribution…” The amendment permits the State a seven year period to gradually phase in its it payments to meet the requirement.
More up-to-date financial data would help citizens to understand where we are now, but the problems are real and the solutions involve tough medicine. New Jersey has to get itself back into a position where it can meet pension obligations and have more funds for the wider needs of its citizens. The recession and some ill-advised pension fund investments did not help the Garden State. Fortunately, New Jersey, as opposed to a number of other states, in 2008 and in the current legislative session is addressing the problem. “It’s a long-term fix, it is not a quick fix,” said Sen. Barbara Buono (D-Middlesex), the majority leader. “Don’t underestimate what we’re doing here today. This is the New Jersey Legislature, where things are maddeningly incremental.” Fortunately, even incremental changes can make a substantial difference over time.
The final outcome of pension reform this year, particularly the constitutional amendment, is not set in concrete, but without substantial changes NJ will be under even heavier concrete that will impede meeting other pressing needs.