(May 21, 2014) — New Jersey Governor Chris Christie announced a staggering cut in pension payments over the next two years to balance the state’s suffering budget.
Christie said the state will contribute $696 million to the state’s retirement system this year, less than half of the planned $1.58 billion. For the fiscal year 2015, the payment will be $681 million, less than one-third of the proposed $2.25 billion.
The executive order reverses the governor’s 2011 pension overhaul, which promised higher employee and state contributions to the funds through 2018. Christie said the slash in payments would help cover almost a $1 billion shortfall in the $33 billion budget found just five weeks before the end of the fiscal year.
“Today I’m doing what I need to do to fulfill my constitutional obligation to balance a budget,” Christie said at a Statehouse news conference. “Today I’m going to pledge to make the payments that we need to make to not dig the hole any deeper.”
The potential 2016 presidential nominee said the new, lower contributions are enough to cover the cost of active employees in the $78 billion pension system, but exclude the unfunded liability accrued under previous governors and legislatures.
“In a time when we’re confronted with this type of challenge, I cannot also pay for all the sins of my predecessors, and so we’re going to do this now,” Christie said. “We’re going to continue to try to get better as we move forward but you’re going to continue to hear from me and you will hear from me soon with specifics on the way we need to change the pension.”
In the 2015 budget, the governor and the state’s treasury department said in the five years in office, the administration had put $5.3 billion into the retirement systems, more than double the amount past governors of both parties had paid in 10 years.
And the changes made in the 2011 pension reforms—despite reducing state and local unfunded pension liabilities by 32%—have not been enough, Christie said. Robert Grady, an economic adviser to Christie and the chairman of the retirement system’s investment board, did not respond to requests for comment by press time.
According to the treasury department, the system has $52 billion in unfunded liabilities.
State Treasurer Andrew Sidamon-Eristoff said the state is unable to pay the legally required minimum of 3/7th of its annual pension obligations as calculated by the fund’s actuaries.
“We believe that our financial priority must be to fund current benefit accruals for our active employees who, after all, are continuing to contribute a portion of their salaries to their retirement,” the treasurer said before the Assembly Budget Committee. “In this manner—with both the employer and employee contributing toward the normal cost—we will be keeping our commitment to fund currently accruing benefits for our employees while, regrettably, deferring our ability to pay down the unfunded accrued liability.”
New Jersey recently took a downgrade from three credit agencies for a controversial change in calculating pension obligations. Actuarial reports in March revealed that the state had discounted employees’ additional contributions from its own payments, shaving off $25 million off the required minimum contribution.
For the 2014 fiscal year, the state had cut $94 million in contributions with the new formula.
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