By Samantha Marcus | NJ Advance Media for NJ.com
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on April 26, 2015 at 8:00 AM, updated April 26, 2015 at 11:26 AM
TRENTON — State Senate President Stephen Sweeney does not leave room for doubt when he says the Democratic-led state Legislature will fully fund New Jersey's public worker pension system next year.
"We're going to fund it," he said.
Democratic leaders say they're forging ahead with plans to make a $3.1 billion contribution into a pension system bedeviled by nearly two decades of underfunding.
Sweeney (D-Gloucester) said lawmakers are devising strategies to boost the funding level in Gov. Chris Christie's proposed budget for the 2016 fiscal year beginning in July by about $1.8 billion.
Christie's budget includes a $1.3 billion payment he hailed as the largest in state history but is less than half of what is required by law and even less still than the amount recommended by actuaries to keep the fund from going broke.
Actuary reports released earlier this year show the state's unfunded liability grew by about $4.5 billion to $40 billion in 2014, blaming some of the new debt on the failure to live up to a 2011 law committing the state to increasing funding levels.
While Christie met the ramp-up schedule for two years, he cut payments in 2014 and 2015 and proposes to do so a third time in 2016 to balance the budget.
Labor leaders have said they won't settle for less than what's owed under that embattled law, and in February won a trial court fight to force Christie to satisfy the 2011 agreement. Christie has appealed to the state Supreme Court, which will hear arguments next month.
Unions have also sued the governor over his plans to short next year's payment, though attorneys for Christie have argued the courts have no say in what he recommends.
Rhetoric heated up this week after Sweeney and Assembly Speaker Vincent Prieto (D-Hudson) joined labor unions in asking the Supreme Court to force Christie to make a larger payment.
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Senate President Steve Sweeney is shown in this January 2014 file photo.
Christie accused Democratic leaders of "suing themselves," while Assembly Minority Leader Jon Bramnick (R-Union) challenged Democrats to come up with the money and Assemblyman Declan O'Scanlon (R-Monmouth) tagged calls to fund the pension "pandering," warning that coming up with $1.57 billion with just two months left in the fiscal year would force mass layoffs of teachers.
"That's hysteria," Sweeney responded. "That's someone that doesn't have an answer for anything."
No matter the outcome of the pitched legal battle, Sweeney, who with Christie spearheaded the 2011 pension reform legislation, said he intends to make good in 2016.
"We can fund it, and we can fund it by doing some smart things in government," he said, describing a cryptic blend of new revenue and cuts.
"Some of it's savings through modernization and efficiencies. And they're real. They're real savings," he said. "We've identified several areas where we're not going to hurt anything but where we're able to save."
In an effort to restore the nearly $1.57 billion cut from pensions last spring, the Legislature passed a budget that raised income taxes on millionaires and corporation business taxes. It was met with an executive veto.
"If it's anything like last year, I'm sure it'll be relying on massive tax increases and accounting gimmicks," Christie spokesman Kevin Roberts said Friday.
Assembly Majority Leader Lou Greenwald (D-Camden) said it's too soon to know what the funding mix will look like, noting that the Legislature is still waiting on final revenue figures that could make their job easier or much harder.
Greenwald told a conference of labor leaders last week that the Legislature is working to meet its obligation, but he acknowledged the difficulties.
"I would by lying to you if I did not tell you as I stood here I do not hold out hope that we can be successful," he said.
The Legislature was able to cobble together funding for 2015, and it will try to do that again in 2016, but Greenwald said funding pensions can't continue to as a year-to-year proposition.
"I'm thinking about it far more than what is our plan for 2016," he told NJ Advance Media. "This is what has gotten us into trouble, looking at it from this year-to-year methodology.
Any plan that hikes income taxes on millionaires, though, could be expected to draw strong objection from Christie, who has warned the added burden will run them out of New Jersey.
"Be careful," he told a town hall crowd in Cedar Grove on Thursday. "You know what happened last year? 10,000 millionaires left New Jersey. People of wealth can move, and they can move easily."
Christie pension fix not a new idea, but ups ante
TRENTON — When Gov. Chris Christie's pension commission issued a highly anticipated report last month, it made one thing clear: No simple tweaking or flitting around the edges will do to fix New Jersey's vastly underfunded public employee retirement system.
To get the kind of payoff New Jersey needs, the panel proposed to reinvent pension and health benefits for hundreds of thousands of active and retired state and local workers.
The plan — which Christie has pitched in his town hall tour and some unions immediately dismissed — would move workers onto less costly health care plans, freeze the current public worker pension system and create a new hybrid of a traditional pension plan and one that resembles a 401(k).
Such big changes have already been enacted in other states with huge pension woes — such as Kentucky, which two years ago created a less generous "cash balance" plan like what's proposed in New Jersey.
But leaders in Kentucky say it wasn't easy — and that Christie is in for an even tougher fight if he wants to enact every big element of his pension commission's plan.
"It was a battle," said state Senate Majority Floor Leader Damon Thayer, a Kentucky Republican.
Kentucky moved to a cash balance pension plan for some public workers in its own quest to rein in rising retirement costs.
The cash balance plan works like this: Like a defined-contribution, or 401(k), plan, an employee's benefits show up as a lump sum in a "hypothetical" personal account, which is funded by employer and employee contributions and investment returns. But unlike a 401(k), employees can receive their benefits in lifetime payments determined by their balance and other actuarial measurements.
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Christie's pension panel recommended this sweeping change as a possible answer to a $37 billion unfunded pension liability — which balloons to $83 billion under new accounting rules.
Since releasing the plan in late February to coincide with his proposed state budget, the Republican governor has taken the proposal on the road, saying pension and health benefits are on the verge of "making it impossible for the state to do much else to invest in a better New Jersey."
Republicans in Kentucky made a similar case.
Without reform, the pension payment would consume payroll costs, Thayer said. In addition, the state and local pension contributions were set to more than double by 2020, according to a Pew Charitable Trusts report.
Kentucky's retirement system, like New Jersey's, consistently ranks among the most underfunded in the country. Past governors of both states made a habit of not making full pension payments.
To hear Thayer tell it, passing those reforms required considerable negotiations and cajoling among the Democratic governor, GOP-led Senate and Democratic-controlled House.
"The cash balance plan was a compromise here in Kentucky," Thayer said. "Republicans did not want to stay with the full defined-benefit system, and we knew the Democrats would never agree to going to a full defined-contribution system."
So in late March 2013, the Kentucky General Assembly passed a pension reform package that formed a cash balance pension plan, committed the state to fully funding its annual required contribution and came up with more than $100 million to pay for it.
But there was a big difference between what Kentucky did and what Christie's panel wants New Jersey to do.
Kentucky's new pension plan covers only employees hired after Jan. 1, 2014. Everyone else stays under the old plan. In New Jersey, Christie wants to also apply it to current workers and freeze their benefits under the current pension plan.
Building the plan around new workers alone "saves virtually nothing," said Tom Healey, a former Goldman Sachs executive who chairs Christie' pension commission.
"If you're a politician you can say 'we did something, we improved the pension plan going forward,' but you haven't saved any dollars," he said.
Attempts to do that in Kentucky would almost certainly have wound up in court, Thayer said.
"Yes we would like to move everybody into a new plan, but there just isn't the political will to litigate that right now," he said. "At some point the fiscal situation we find ourselves in, somebody may choose to do that."
State Assembly Budget Committee Chairman Gary Schaer (D-Passaic) said Christie's "extremely aggressive, if not radical" proposal is destined to fail.
"I think what the governor is doing is saying 'I put out an idea. I've done my job, now (the legislature) should do theirs','" he said. "It's great politics."
Christie's spokesman Kevin Roberts said the governor has "put forward a comprehensive plan and, in that regard, now need the Legislature to step up and be a part of the conversation and take action on solutions too."
As of 2005, nearly a quarter of private sector workers with defined-benefit pension plans were enrolled in cash balance plans, according to the U.S. Bureau of Labor Statistics.
California, Nebraska, Texas and Kansas also operate cash balance plans for at least some state or local employees, according to a 2014 Pew report.
Models vary, but in Kentucky's scheme, workers contribute 5 percent or 8 percent of their pay, depending on their job classification, and the state or municipality kicks in another 4 percent or 7.5 percent.
While 401(k) plans are vulnerable to markets, Kentucky guarantees at least a 4 percent investment return. If returns beat that, workers keep most of the excess and the state puts its share away for a rainy day.
Employees are vested after five years, and can leave with their entire balance.
But an Urban Institute study of Kentucky's plan found that employees with fewer years of service would receive higher benefits, and more tenured employees would receive less.
For example, a worker earning the average salary and retiring after 35 years would get a $47,900 pension under the traditional plan, according to the Urban Institute. If that worker was in the cash balance plan, the pension would be no more than $33,200 a year.
However, that same worker would get a traditional pension of $3,200 if he or she retired after 15 years, as opposed to anywhere from $7,400 to $15,300 under the new plan.
Healey agreed that younger employees may be better off than mid-career employees under the new plan. Plans for the lowest tier of workers, hired after the 2011 reforms, receive little state money.
"This is equal and fair across both older and new workers," Healey said. "If we were starting from scratch in New Jersey, this is the plan we would offer everybody. So let's offer it."
The combination of the frozen pension plans, new pension plan and Social Security will still provide "a solid basis for retirement" for the older workers, he said.
Schaer stressed there's still the issue of fairness.
"It is a significant change from what we promised to employees when they joined government service," he said. "We're not just talking about someone who's been in government service for 10, 15, or 20 years, but someone who's on the verge of retirement."
According to the governor's pension commission, freezing the existing system would save the state and local governments more than $2 billion in a single year. The cash balance plan would cost the state and local governments $1.23 billion a year.
Jason Bailey, director of the Kentucky Center for Economic Policy, said the less generous pension benefits for longtime workers will spur faster turnover. And while Pew touts cash balance costs as more predictable than those of traditional pension plans, Bailey said that doesn't necessarily mean they'll be less expensive.
"The only thing that we did get out of it was they did make this commitment to pay the full (annual required contribution) going forward and created this little bit of revenue," he said.
Kentucky's 2013 reforms came just a few years after another retooling of the system in which the state agreed to gradually increase payments until reaching the annual required contribution in 2024.
New Jersey made a similar promise in a 2011 pension law that brought national attention to Christie, who is considering a run for president.
But the governor last year didn't keep to the state's promised contribution, slicing more than $2.5 billion in payments. He now says his initial reforms didn't go far enough.
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