New Jersey Task Force Releases Plan for Underfunded Pension System
New Jersey’s pension system needs $12.1 billion to meet its current pension obligations to teachers, police officers and local government workers, according to the report of the governor’s Benefits Review Task Force released last week.
The Task Force, appointed by Acting Governor Richard Codey and headed by retired Goldman Sachs executive, Philip Murphy, concluded that the current system could not be maintained without large tax increases or severe cuts in state services, Bloomberg.com reports. The report also calls for New Jersey to stop using accounting gimmicks to avoid making pension contributions, to end padding and abuse in the system and to make changes in retirement age and benefits.
The first proposal, Murphy said, is for the state to start “paying up and ending the gimmicks,” the Trenton Inquirer reported. The report criticizes legislators for allowing government to take “holidays” from pension payments, using accounting gimmicks and bonds to mask shortfalls, and raising benefits without making contributions to cover the expense, Bloomberg.com reports. “The state changed the accounting and valuation rules as it saw fit to justify both pension holidays and increased benefits,” the report said. “Such valuation gimmicks and pension holidays must end.”
The Task Force report suggests exploring the sale of state-owned assets, possibly the New Jersey Turnpike or the Garden State Parkway, both toll roads. Other major recommendations include increasing the retirement age for some state workers from 55 to 60, requiring state employees to designate a single job for pension purposes and ending the practice of end-of-year pay increases that can boost pensions. The report also recommends basing pensions on the last five years worked instead of the last three and having current and retired employees assume a greater burden of their health care costs, The Trenton Inquirer says.
“Clearly, there’s pain to go around,” Murphy said, according to the Asbury Park Press. “We wanted to make sure the pain is spread around.”
Most of the Task Force’s recommendations would require legislative approval. Senate Minority Leader Leonard Lance, (R., Hunterdon) said that the legislature would be eager to stem pension abuses, the Trenton Inquirer reports, but that changing the retirement age would take a hard look. He said that resuming contributions, including the $1.5 billion needed for the next fiscal year, was a good goal but would be a challenge, since the state is facing a budget shortfall of $5 billion, the Inquirer said.
State employee unions have rejected the idea of raising the retirement age from 55 to 60. Carla Katz, president of Communications Workers of America Local 1034, the state’s largest employees’ union, said that changing the retirement age would “spark widespread protest and anger,” according to the Inquirer. Other unions object to the exclusion of police and fire pensions from the changes.
The legislature faces additional constraints in dealing with their budget problems, according to Bloomberg.com. New Jersey residents pay the highest property tax in the nation, according to the U.S. Census and voters want relief. And in July, New Jersey will be required to report health care liabilities for employees and retirees, which have tripled since 2001, under new rules set up by the Government Accounting Standards Board (GASB).
Governor-elect Jon Corzine has pledged to fully fund the state system next year with a contribution of $1.5 billion. A spokesperson for Corzine would not comment on the report, saying that the governor-elect’s transition team had not seen the report.