Wednesday, June 08, 2011

New York and New Jersey Reveal Pension Reform Packages

New Jersey Governor Chris Christie, a Republican, has slammed the state pension system in the state since before he took office. The state unions have repeatedly taken umbrage with him, but it appears that he's worked out a deal with the State Senate (controlled by Democrats) to amend the pension system to require state workers to pay more into their pensions, to pay a greater percentage of their health care costs, and for the state to pay its pension obligations.
Under the deal, most public workers would immediately pay an additional 1 percent of their salaries for their pensions, while police and firefighters would pay an additional 1.5 percent. The state would pledge to increase its pension contributions to legally required levels.

The sources declined to speak openly in advance of an announcement, which could come Wednesday.

So far, it’s unclear if Assembly Speaker Sheila Oliver (D-Essex), who would need to post the bill for a vote in the Assembly, is on board.

Both legislative leaders are in meetings with Democratic lawmakers right now.

Workers would pay up to 30 percent of their health care premiums after a four year period. But, unlike Christie’s original proposal, the payments would be tiered based on income, so employees with lower salaries pay less.

CWA New Jersey Director Hetty Rosenstein declined to discuss the specifics of the proposal, but said she’s opposed to legislation that “undermines collective bargaining.”

“This proposal attacks collective bargaining. It’s absolutely unaffordable. And it does not one thing – there’s no indication that it does anything to address the high cost of health care.”

Several public sector labor union leaders are standing near the Assembly Democrats’ room, hoping the lower chamber will provide a bulwark against the health benefits part of the package.

Public unions want health benefits to be decided through collective bargaining, not legislation.
The high cost of health care is a crushing burden not only on the workers, but on the states that have subsumed the costs. That's something that the union ought to take up with the Obama Administration when additional aspects of the Affordable Health Care Act take effect over the next few years. Having workers pick up a greater percentage of their health care costs is something that should bring those workers in line with the private sector.

At the same time, New York Democrat Andrew Cuomo has revealed his own pension reform package, and it too involves significant changes:
The highlights:

  • Raising the retirement age from 62 to 65
  • Ending early retirement
  • Requiring employees to contribute six percent of their salary for the duration of their career
  • Providing a 1.67 percent annual pension multiplier
  • Vesting after 12 years instead of 10 years
  • Excluding overtime from final average salary
  • Using a five year final average salary calculation with an 8 percent anti-spiking cap
  • Excluding wages above the Governor’s salary of $179,000 from the final average salary calculation
  • Eliminating lump sum payouts for unused vacation leave from the final average salary calculation
  • Prohibiting the use of unused sick leave for additional service credit at retirement
The reform of the state pension system would impact new hires by the state and local governments, including school districts. The NYC pension reform plan would cover new employees of New York City, including the uniformed services.
In total, the Cuomo plan would save the state $93 billion over 30 years, not counting savings for New York City.

Both New York and New Jersey are facing massive problems with their benefits systems, and realigning those systems with private sector benefits will help make the system more affordable for the taxpayers who fund those systems. For far too long, legislators in both states doled out benefits that the state could ill afford, and repeatedly underfunded those benefits overtly by cutting pension obligation payments or reducing payments based on Wall Street return on investments that were out of touch with what a conservative estimate should have expected.

Expect significant pushback from the unions in both states, and we're already seeing that in New Jersey.

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