NJ's Christie, Sweeney Approach Deal to Slash Pensions and Benefits

(June 8, 2011) — New Jersey Governor Chris Christie and Senate President Stephen Sweeney have reached an agreement to cut pensions and benefits for current public employees, the Wall Street Journal has reported.

Under the deal, workers would need to pay more of their salaries into the pension system. They would also need to give up annual cost-of-living increases while also paying a percentage of their health care premiums in a tiered system based on their salary, according to the WSJ. The proposed deal also comes nine months after Christie announced his proposals for cuts to help balance the state’s pension system. The scheme is underfunded by $53.9 billion, up $8 billion from one year ago, according to the Department of Treasury.

One major change included in the proposal would mandate that the state make its payments to the pension fund — a requirement that would end New Jersey’s decade-long practice of skipping payments into the scheme. In March, in an effort to boost funding levels,, the New Jersey State Investment Council approved new investment guidelines, which would allow a higher alternatives allocation totaling 35% of assets from the current cap of 25%.

In contrast, some state funds have been able to achieve superior funding levels due to mandatory contributions. “There are several reasons why funds in the United States have such low funding levels — one reason is that a lot of funds were in trouble because they didn’t keep up with contributions, so states have promised benefits, but are not funding them,” State of Wisconsin Investment Board spokesperson Vicki Hearing told aiCIO in late April, following a report by the Pew Center on the States that ranked SWIB high on its list of scheme funding levels. “The Wisconsin Retirement System funding level is strong and historically has been strong. We’ve met 100% of our contributions because it’s mandatory in the state. There’s never been a holiday here, while other states have had holidays for contributions,” she said, noting that the lack of mandatory contributions among pensions has created major attention in recent years.

Another factor that has driven Wisconsin’s superior funding level, Hearing noted, is the fact that the state’s contribution rate and the amount paid to participants are based on the fund’s investment returns. “Our participants sharing in investment performance is a unique part of our retirement system,” Hearing said. “We had a really difficult year in 2008, with low investment returns, so the amount paid out to retirees decreased over a five-year period,” she noted, adding that this year, retirees have a decrease of 1.2% in payments. “Systems are looking to address this issue and public pensions are making changes — that’s at the top of their radar.”

Whether the New Jersey pension system can make up for years of allegedly bloated benefits and state government malfeasance in not funding the pension system has yet to be seen.