As reported by, Moody’s Investors Service again sent up a warning flare that a possible New Jersey Supreme Court ruling striking down cuts to public retirees’ pension benefits would soak the struggling retirement system with new pension liabilities.  But in its latest report released on the “extraordinary decisions and challenges” the Garden State faces, the Wall Street ratings agency estimated the public pension system’s $55 billion unfunded liability ($113 billion if measured under different accounting standards) would increase by a third if state and local governments are forced to restore retirees’ cost-of-living increases.

About $40 billion of the $55 billion (or $80.5 billion of $113 million) in pension debt belongs to the State, which pays retirement benefits for state workers, teachers, and some law enforcement, according to State bond documents.  That shortfall in what it would cost to pay for future benefits has accrued over two decades as governors skipped or shorted annual pension payments.  And New Jersey’s annual average contribution over the past seven years, 13.5 percent, is the lowest in the U.S., Moody’s said.


A group of retired state workers has sued the State, arguing a 2011 pension law struck to shore up the system, in part, by freezing their benefits until it’s in better shape, violated their rights to their benefits.  That change cut the State’s liability by $17.5 billion in 2009, Moody’s reported.  The State portion of the unfunded liability would increase from $40 billion to about $53 billion and the system would fall from 51 percent funded to 44 percent if the Court strikes the freeze down.  “The heightened burden, combined with an increase in benefit costs, would hurt New Jersey’s pension fund cash flows and funded status and the state’s ability to reach structural budget balance,” Moody’s said.

Here’s what that would look like if the State paid the full actuarial required contribution each year, which it does not:  instead of $4.4 billion this year, it would owe $5.7 billion, according to the report.  And if the new costs were folded into the Governor’s current commitment to increase contributions into the system by one-tenth of the amount recommended by actuaries each year, the State would owe $2.3 billion next year, $1 billion more than it’s kicking in this year.  It follows then that the State’s pension funds, two of which are estimated to go broke by 2027, will do so sooner.


New Jersey would be better in its financial trajectory if it implemented drastic pension reforms proposed by a special commission appointed by Governor Christie, Moody’s said, using the industry term “credit positive.”  The commission recommended freezing the government worker pension plan and moving active employees onto a cash-balance plan, offering less expensive health care plans and having workers pick up more of the tab.  The health care savings would be recycled to offset pension costs.  That plan would have positive implications for the State’s structural imbalance and its ability to make larger annual pension payments, Moody’s said.  The commission projected its plan could cut pension and health care costs from nearly a quarter of the State’s annual spending to 17 percent.


Moody’s weighed in briefly on that proposal too, saying that constitutionally scheduled payments without reforms would “improve the fund’s aggregate funding position, but significantly reduce the State’s near-term budget flexibility.  A constitutional requirement to make pension contributions would remove a tool that the State has used to balance its budget for decades.”  Echoing an argument made by Republican opponents of the amendment, which would also mandate the State make quarterly payments into the system rather than waiting until year’s end, Moody’s suggested that with low budget reserves and the “timing mismatch between revenues and expenditures,” the State would struggle to come up with the cash.

Email this postTweet this postLike this postShare this post on LinkedIn
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.