As reported by nj.com, the State of New Jersey is opening its books to the IRS regarding its troubled public employee pension funds to find out if it is in compliance with the federal tax code. In January, the State Treasury Department asked the IRS to review the tangle of rules and regulations that guide the pension plans, currently valued at $70 billion, for hundreds of thousands of state employees and issue what is called a determination letter, essentially signing off on how the plans are being administered.

Former state pension director Fred Beaver said he began seeking IRS approval before stepping down last year because he was concerned about the impact of changes to laws regulating the funds through the years. “I was concerned about an audit, and I wanted to make sure there were no surprises,” Beaver said. 

The federal review comes as the state’s pension plans face uncertainty and increased scrutiny. With a shortfall of $54 billion, they are among the most underfinanced in the nation and at the center of a tug of war between Governor Chris Christie and Democratic lawmakers over how to stabilize the system. Last month, Standard and Poor’s lowered the state’s bond rating to among the lowest in the country, citing the poor financing levels of pension funds.  

After the review, which could take years, the IRS might sign off on the pensions or suggest changes that, if ignored, could result in the agency stripping the plans of their tax exempt status. In short, the agency will examine how the state’s seven pension plans for public employees are being overseen, including how benefits are accrued and who is eligible for them. However, it will not look into how the plans became underfunded by $54 billion.

Tags: Articles, IRS, pension funds, Pension Underfunding, public pensions, Standard & Poor's
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Photo of Donald C. Barbati Donald C. Barbati

Donald C. Barbati is a shareholder of Crivelli, Barbati & DeRose, L.L.C. His primary practice revolves around the representation of numerous public employee labor unions in various capacities to include contract negotiation, unfair labor practice litigation, contract grievance arbitration, and other diverse issues…

Donald C. Barbati is a shareholder of Crivelli, Barbati & DeRose, L.L.C. His primary practice revolves around the representation of numerous public employee labor unions in various capacities to include contract negotiation, unfair labor practice litigation, contract grievance arbitration, and other diverse issues litigated before the courts and administrative tribunals throughout the State of New Jersey. In addition, Mr. Barbati also routinely represents individuals in various types of public pension appeals, real estate transactions, and general litigation matters. He is a frequent contributor to the New Jersey Public Safety Officers Law Blog, a free legal publication designed to keep New Jersey public safety officers up-to-date and informed about legal issues pertinent to their profession. During his years of practice, Mr. Barbati has established a reputation for achieving favorable results for his clients in a cost-efficient manner.

Mr. Barbati has also handled numerous novel legal issues while representing New Jersey Public Safety Officers. Most notably, he served as lead counsel for the Appellants in the published case In re Rodriguez, 423 N.J. Super. 440 (App. Div. 2011). In that case, Mr. Barbati successfully argued on behalf of the Appellants, thereby overturning the Attorney General’s denial of counsel to two prison guards in a civil rights suit arising from an inmate assault. In the process, the Court clarified the standard to be utilized by the Attorney General in assessing whether a public employee is entitled to legal representation and mandated that reliance must be placed on up-to-date information.

Prior to becoming a practicing attorney, Mr. Barbati served as a judicial law clerk to the Honorable Linda R. Feinberg, Assignment Judge of the Superior Court of New Jersey, Mercer Vicinage. During his clerkship Mr. Barbati handled numerous complex and novel substantive and procedural issues arising from complaints in lieu of prerogative writs, orders to show cause, and motion practice. These include appeals from decisions by planning and zoning boards and local government bodies, bidding challenges under the Local Public Contract Law, Open Public Records Act requests, the taking of private property under the eminent domain statute, and election law disputes. In addition, Mr. Barbati, as a certified mediator, mediated many small claims disputes in the Special Civil Part.

Mr. Barbati received a Bachelor of Arts degree in history, magna cum laude, from Rider University in Lawrenceville, New Jersey. Upon graduating, Mr. Barbati attended Widener University School of Law in Wilmington, Delaware. In 2007, he received his juris doctorate, magna cum laude, graduating in the top five percent of his class. During law school, Mr. Barbati interned for the Honorable Joseph E. Irenas, Senior United States District Court Judge for the District of New Jersey in Camden, New Jersey, assisting on various constitutional, employment, and Third Circuit Court of Appeals litigation, including numerous civil rights, social security, and immigration cases.

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