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.