New Jersey Begins Serious Discussion on Pension Reform

New Jersey has one of the worst state worker pension time-bombs in the nation. It's underfunded obligations total more than $54 billion, which is nearly 1.5 times the size of the annual budget.

It's an unsustainable situation and Democrats and Republicans in Trenton are finally recognizing the seriousness of the situation.

Legislative Democrats have floated a series of proposals ahead of Republican Gov. Chris Christie's state of the state address, and if both State Senate President Stephen Sweeney and Gov. Christie can focus on the issue and work out a comprehensive plan, the state can begin the arduous task of correcting the longstanding structural deficits that have plagued the state for years on end.

The major changes the Democrats proposed:

• Replace the current oversight boards with joint labor/management boards for each of the pension systems. The boards would be made up of an equal number of union and state officials, who would decide who would manage the fund’s investments and determine the rate employees and employers pay into the fund.

• Employees and employers would have to pay more into the pension system if its fiscal health declines. Sweeney, a general organizer for the International Association of Ironworkers, said his union members agreed to pay $2 more per hour to keep their pension system going.

• Workers would either forgo a 9 percent pension boost they got 10 years ago, or keep it but pay more into the system.

"To put it simply, if public workers want a higher pension, then they'll have to pay more for it," said Oliver.

• Those with less than five years of service at the time of the new law’s enactment would no longer get cost of living adjustments. Workers with more than five years would be eligible, but would have to pay a higher rate to get them.

Sweeney said the governor and Legislature should not be trusted to determine the specifics about what benefits should be. He noted the 9 percent pension bump workers got in 2001.

"When Acting Gov. (Donald) DiFrancesco did this enhancement, it was with an eye towards being elected governor. Let’s get everyone out of it and make pensions be managed the way they’re supposed to be," he said.

It will be an uphill battle to take the politics out of the pension system, but ensuring that those workers who are already in the system are fairly treated while protecting taxpayers from future price shocks is critical. That means requiring additional worker contributions at the same time that the state pays its pension obligations.

However, it also means that the discussion has to focus on new state workers and their benefits packages - and shifting from defined benefit plans (pensions) to defined contributions (401k) that dominate the private sector workforce.