N.J. Supreme Court Says COLAs Are Not a Contractual Right

Many New Jersey public sector retirees saw their cost-of-living adjustments (COLA) suspended under a pension-reform bill signed in June 2011.

The New Jersey Supreme Court ruled that retired public employees do not have a contractual right to receive increasing cost-of-living adjustments (COLAs) to their pension payments, a decision that is expected to save the state billions of dollars, according to Reuters.

Many New Jersey public-sector retirees saw their COLAs suspended under a pension-reform bill signed in June 2011 by New Jersey Governor Chris Christie, aimed at closing an approximately $11 billion unfunded liability through a variety of changes and overhauls.

The aggregate funded status of the state’s roughly $83 billion pension system is 48.6%, according to the news report.

The new ruling is a second victory for Christie’s administration in lawsuits challenging his actions following the 2011 reform. In March, The U.S. Supreme Court denied a request to review a case about whether New Jersey Governor Chris Christie violated the law by making pension contributions in an amount less than what was agreed upon in 2011 pension reform.

Previously, a New Jersey Superior Court judge ruled the state’s failure to make promised contributions into its pension systems was a substantial impairment of public employees’ constitutionally protected contract rights, and ordered the state to pay approximately $1.57 billion to the pension funds. This amount was previously approved in a fiscal year 2015 budget by the legislature, but removed by Governor Chris Christie.

The New Jersey’s Supreme Court ruled the legislature and governor were without power, because the pension contributions promised in 2011 reform are not part of an enforceable contract without voter approval. The court said the promised contributions are enforceable only as an agreement that is subject to appropriation, which under the New Jersey constitution’s Appropriations Clause renders it subject to the annual budgetary appropriations process.