N.J. Democrats offer plans to overhaul public-employee pensions

Posted: January 08, 2011

TRENTON - Democratic legislative leaders Friday presented parts of a plan to help the state's underfunded public-employee pension plans.

Under the proposal outlined by Senate President Stephen Sweeney (D., Gloucester) and Assembly Speaker Sheila Oliver (D., Essex), public employees would be required to contribute more toward their pensions to keep a 9 percent increase in benefits granted in 2001.

"Employees can keep the more expensive benefits they were handed if they are willing to pay for them," said Sweeney, who blamed former Gov. Donald DiFrancesco, a Republican, and a GOP-led Legislature with starting the pension problem a decade ago. "The unfunded pension boost Gov. DiFrancesco and the Republican Legislature handed the unions has been a significant weight holding the system underwater for the past decade," he said.

The state's seven pension funds cover 720,000 current and retired teachers, police officers, firefighters, judges, and other government workers. As of June 30, the seven had an unfunded liability of $53.9 billion. The funds had 62 percent of the assets required to pay promised benefits in the long run; pension experts recommend maintaining at least 80 percent.

A key reason the pensions are so underfunded is the state's consistent shortchanging of its share of contributions, stretching back over several governors of both parties. Under Gov. Christie's first budget this year, the state is skipping its entire planned payment of more than $3 billion.

Sweeney and Oliver also proposed doing away with automatic cost-of-living adjustments for some retirees. Under their proposal, no current employees with fewer than five years of service would receive a cost-of-living adjustment upon retirement unless the pension board found a way to pay for it. Employees with more than five years of service would remain eligible for cost-of-living adjustments, but would have to pay more toward their pensions to receive them. Current retirees would not be affected.

The proposal would also make some changes modeled on pension laws in the private sector, including requiring both employees and employers to either contribute more or adjust benefits if the pension funds dip too far, although Sweeney and Oliver did not disclose details of their proposal, which is being drafted into legislation.

Christie proposed extensive pension changes last fall, which have been placed on hold as the Legislature has concentrated on various bills intended to help tame property taxes.

Christie spokesman Michael Drewniak declined to respond to the specifics of the Democratic proposal Friday but said, "The good news is everyone, including the Democratic leadership, recognizes the need to go further and work in a bipartisan way to fix a broken pension system that will benefit no one if it is unsustainable and goes broke under its own weight."

Christie's pension-overhaul plan includes rolling back the 9 percent increase in pension benefits for all future service, increasing the normal retirement age for most state workers and teachers from 62 to 65, and requiring all employees to contribute 8.5 percent of their salaries toward their pensions. Other changes proposed by the governor include ending cost-of-living adjustments, increasing the number of years of service required for early retirement to 30 years from 25, and changing the state's assumed rate of investment returns from 8.25 percent to 7.50 percent.

According to a law signed by Christie last year, the state is on a seven-year plan for making the required contributions as determined by actuaries. In the year that begins July 1, the state should contribute 1/7 of the required amount, the next year 2/7 of the amount, and so on.

Since signing the law, however, Christie has cast some doubt on whether the state will pay the 1/7 contribution this year. Sweeney has said he will not agree to pension changes until the governor commits to paying into the system.


Contact staff writer Adrienne Lu at 609-989-8990 or alu@phillynews.com.

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