By doing nothing, Christie warned in an announcement posted on his Web site, New Jersey’s unfunded pension liability will spike from $46 billion to $181 billion by 2041, while the cost of public employee benefits to taxpayers will grow 40% over the next four years.
According to the announcement, the proposal covers the Public Employee Retirement System (PERS); Teachers Pension and Annuity Fund (TPAF); State Police Retirement System (SPRS); Police and Fire Retirement System (PFRS); and Judicial Retirement System (JRS). It will affect more than 780,000 current and ex-employees and retirees.
The plan eliminates annual future cost of living adjustments for all current and future retirees and rolls back a 9% benefit increase on all future earned pension credit authorized in 2001 for teachers and government workers, which Christie said was never funded. Noting employee contributions currently vary among the systems, from a low of 3.0% to 8.5%, Christie said his reforms would also adopt a uniform employee contribution rate of 8.5% across all retirement programs.
For teachers and government workers with fewer than 25 years of service, the retirement age would be raised to 65. Employees with 30 years of service would be eligible for early retirement, but would suffer a 3% per year penalty. The employee’s average annual salary for the highest five years would be used to calculate their benefit rate, instead of the highest three years as under the current system.
Changes for First Responders
For police and firefighters, the reforms would change eligibility for special retirement from 65 with 25 years of service to 65 with 30 years and 60 with 25 years. This change will require the use of an employee’s average annual salary over the highest three years, rather than the highest year.
“I know these reforms will not be popular with everyone,” said Christie, in the statement. “I also know that failure to follow through with dramatic pension reform will imperil the system for everyone, and that failure to control and share costs of health care benefits will continue to eat away at our state and local budgets. We must reverse the damage caused by fairy tale promises that have fattened benefits and pensions to unsustainable levels while ballooning unfunded liabilities to breathtaking levels.”
The new Christie plan also has the state transitioning by 2014 to having employees pay 30% of health benefit costs and the state pay 70%, rather than the current 92% paid by the state.
The Garden State's pension and benefit funding crisis prompted the U.S. Securities and Exchange Commission to take the unprecedented step of suing the state in mid-August, alleging the state had committed fraud by not disclosing the true depth of its funding issues when it sold government bonds (see NJ Hit with Fraud Charges for Pension Funding Disclosure Failures).
Earlier this month, Connecticut Governor M. Jodi Rell proposed her own public employee pension and health care benefit reform package in an effort to deal with that state’s $34-billion unfunded benefit liability (see Rell Puts Forward Benefit Unfunded Liability Reduction Plan).