Making Sense Of Pension Reform

Trenton Times, March 26, 2010

When Governor Christie signed three landmark public employee pension reforms into law late Monday evening, lawmakers should have known the job was only half over. In retrospect, passing these reforms in the first place may have been the easy part, as lawmakers’ offices have quickly become inundated with phone calls and e-mails from nervous employees unsure of what these changes mean to them and their families.

To try to reach out to every single public employee would be a nearly impossibly task. Hopefully, answering these frequently asked questions will not only put their minds at ease, but ensure all residents understand why this action was needed.

How bad is the problem, really?

A recent report from the Pew Center for the States showed that New Jersey’s pension system had the third-highest unfunded liability in the country. When that report was compiled, the gap stood at $34 billion – it has since grown to nearly $46 billion. Pew placed our pension system in the category of “serious concern,” among the eight worst states in the nation. New Jersey’s unfunded liability for retiree health costs is the highest in the nation, ahead of even California.

Why is only New Jersey focusing on its public employee pensions?

We’re not. According to Stateline.org – a clearinghouse for news from all 50 state capitols – at least 16 other states are considering similar changes to their pension and health benefits systems.

I’m a career public employee. Why are you taking away my pension and retirement benefits?

We are not. The pension system was created to provide for career public employees, and now we are returning it to that core mission. The only change any current employee will feel any impact from is the requirement that they contribute at least 1.5 percent of their salaries towards the cost of health benefits – at the start of their next contract. This is something most state employees already do. All other reforms being implemented – changing the pension calculation, limiting sick leave pay-outs, removing part-time workers from the system – are prospective and will only impact newly hired employees.

What do you mean, “prospective?”

For better or worse, the rules in effect when a public employee entered into the system under are the rules they will continue to work under. We can, however, make sure the system is fixed for everyone who enters the pension and benefits system from this point onward.

The police in my town already pay 1.5 percent of their salaries to their health benefits, why are they being made to pay an additional 1.5 percent on top of that?

They are not. The 1.5 percent figure is a blanket minimum. If a contracted employee already pays 1.5 percent, they will keep paying only 1.5 percent. There is no additive effect.

What about retiree health care?

All employees hired after May 21, 2010 will be required to contribute 1.5 percent of their pensions towards health care when they retire. Current retirees are not affected.

Who chose 1.5 percent, anyway?

This is a more than fair amount for public employees to contribute to their health care. A public employee making $40,000 a year will pay $600 towards their own premium – or roughly $11.50 per week. The non-partisan Office of Legislative Services estimates that even with this minimal contribution, local property taxpayers will still be able to save more than $300 million over the next fiscal year alone, and hundreds of millions more over time as more public worker contracts expire.

What about people who work at one of the many state or local authorities or commissions?

Anyone who is a member of the State Health Benefits program or one of the state pension systems will be treated in exactly the same way, regardless of where they work.

Why weren’t politicians and political appointees included in these reforms?

Those reforms already were done three years ago. Anyone elected or appointed official who took office after 2007 – including the Governor, Cabinet officials, Senators, Assembly members and mayors – is barred from the state pension system. They all must enroll in a 401k-style defined-contribution plan. Any legislator who receives health benefits through the state plan pays the same 1.5 percent as anyone else. And all newly elected officials will no longer be eligible for health benefits.

That’s it.

This reform effort never was about trying to break our promises to career public servants, as some vocal union leaders alleged. It has always been about restoring sanity to a system created to support and reward career full-time public employees for their service. And with these reforms now law, we are moving ever closer back to that core principle.