As reported by NJ.com, Governor Chris Christie’s high-powered pension commission has proposed a sweeping plan that would save the State billions in retirement and health care costs while reducing benefits for hundreds of thousands of public workers. The commissi0n says New Jersey needs to drastically change its pension and health plans. Christie’s budget address will launch the complex proposal, which he’ll hold up as the answer to a $37 billion unfunded pension liability-which balloons to $83 billion under new accounting rules-and $53 billion in unfunded health care liability.
Unlike the 2011 reforms, which left the pension system intact while making changes to employer and employee contributions, the commission’s far-reaching recommendations include freezing that plan and moving active public employees onto a hybrid of a traditional defined-benefit pension plan and a 401(k)-like defined-contribution plan. That change is part of a scheme that calls for less expensive health care plans and for employees to pick up a larger share of their health insurance costs. The state’s health care savings would be recycled into closing the gap in pension funding. Perhaps the report’s biggest bombshell is the proposal to freeze the existing state and local pension plans and move workers onto a so-called “cash balance” defined-pension plan.
Freezing the existing pension system would save the State and local government more than $2 billion in a single year. The cash balance plan would cost the State and local governments $1.23 billion a year, based on $26.6 billion in combined payroll. Employees who are now under the traditional pension plan would not be able to accrue more benefits, their existing benefits are protected, and the State must continue to may payments on it.
Like a defined-contribution, or 401(k) plan, an employee’s benefits would show as a lump sum in a “hypothetical” personal account, which is funded by employer and employee contributions and investment returns. But unlike a 401(k), employees can receive their benefits in lifetime payments determined by their balance. The cash balance could be a boon to younger, newer employees who currently receive the lowest tier of benefits offered by the State. It would be less attractive to more tenured workers.
Along with the retirement overhaul, the panel proposes health care cuts it characterizes as bringing benefits in line with what the private sector offers. That “significant reduction” in State and local costs is crucial to freeing up funding for the pension plans, the panel said. Public employers pay, on average, 95 percent of an employee’s health care expenses, while the average employee pays 18 percent of premium costs. Benefits would be reduced, with the employer paying 80 percent of expenses and the average employee contribution to their premium increasing to 25 percent. Retirees would receive the lower level of coverage without having to kick in more. The commission didn’t venture into choosing a new plan’s mix of deductibles, copays, coinsurance and other features.
For their sacrifice, employees would be rewarded with a constitutional amendments guaranteeing that the State make required pension payments. At the same time, the proposed constitutional amendment would strip a group of employees of the “nonforfeitable right” to receive certain benefits that has exempted them from previous reforms. “A constitutional amendment permitting the reduction of benefits and implementation of these reforms, and also compelling compliance with the payment schedule intended to fund these obligations, would provide an enforcement mechanism that beneficiaries could trust,” the report said.
While Christie said his administration is working with the New Jersey Education Association teachers union on a framework of the plan, some unions are likely to bristle at its recommendations. The police and firefighters’ unions, for instance, are locally funded and are much healthier than the state-funded plans. Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association, immediately dismissed the findings, saying his group’s fund should simply be carved out from the state system.
“The five state and local pension funds should have been analyzed individually rather than as a whole,” Colligan said in a statement. “Our pension system is funded by local governments who are making their payments and which, along with our 10 percent member contributions, makes it the healthiest employee pension fund in the state…To propose solutions to further reduce employee benefits essentially ignores the math of (Police and Firemen’s Retirement System) and punishes nearly 40,000 law enforcement officers and firefighters who have no part to play in the State’s underfunded pension plans.”
Please continue to check this blog periodically to ascertain updates regarding any and all potential pension and health care reforms. As you all well know, any such reforms will have a massive impact on all New Jersey Public Safety Officers and the public at large.