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N.J. Can’t Afford Its Pension System

From the Star-Ledger, Feb. 22, 2010

Trying to tackle pension and benefits reform in Trenton is a lot like playing the game “telephone.” Every time new proposals are introduced, the message gets lost in translation; mischaracterizations lead to fear and ultimately to resistance.

We’ve now reached a precipice; the luxury of time has flown out the window. The system, which is one of the largest drivers of local property taxes, is about to collapse under its own weight and taxpayers can no longer afford to prop it up.

Recognizing the severity of the situation, Senate President Steve Sweeney and I spearheaded a bipartisan package of pension and benefits reform bills. Last week, a Senate panel took the first legislative step in approving this package and today the full Senate will vote on it.

With so much at stake, it’s imperative that we take the time to engage in an honest dialogue, separating fact from fiction.

I understand how employees can fear change. A healthy pension and benefits package is part of what attracts many to a career in public service. So let me be clear: These reforms are not meant to renege on the benefits promised to current employees or retirees.

To the contrary, these bills contain long-term, cost-saving, systemic changes — the vast majority of which apply only to future employees — designed to protect the retirements of career public employees while requiring government to meet its annual pension obligations. Our goal is to ensure that workers get the benefits they were promised and taxpayers are not left to shoulder excessive costs.

The truth of the matter is this: New Jersey’s current pension and benefits system is unsustainable.

This fiscal year, the health care costs for state and local employees and retirees accounts for a staggering $2.36 billion of the state budget. When it comes to pensions, the entire system is estimated to be underfunded at upwards of $34 billion because we are paying out more than we put in and fund investments have dropped precipitously. For example, in 2009, the teachers’ pension plan had about $2.7 billion paid out in pension benefits and expenses, but only $585 million put in and an investment loss of $771 million.

When you consider these facts, the real question becomes: How can we afford to not reform our system?

Already, we have seen criticism that we are moving too quickly and these changes have not been clearly thought out. To the contrary, most of these proposals are the product of exhaustive analysis conducted by a special committee convened during the Legislature’s 2006 Special Session on Property Tax Reform.

The majority of these reforms apply solely to future employees, including: limiting enrollment in the current pension system to full-time employees and moving part-timers to a defined contribution system; increasing the number of years used to calculate retirement benefits; capping payouts for unused sick leave at $15,000 to eliminate exorbitant payouts; and limiting the amount of vacation time that can be carried over each year.

However, the changes that have been proposed for current and future employees are fair and practical, and quite honestly, overdue. These include: requiring all public employees — state, school district, and local — to pay at least 1.5 percent of their salary towards their health benefits after the expiration of their current contracts; and allowing all employees with under 10 years of service to opt out of the retirement system if they wish.

Additionally, the proposals seek to crack down on pension padding by designating only one job towards pension benefits for all new hires and any current employee who leaves the system and later rejoins.

Perhaps most important, we have proposed a constitutional amendment that would require the state to hold up its end of the bargain to fully fund annual pension obligations.

Now is the time to put partisan politics, parochial interests and personal fears aside. These reforms are intrinsically tied to everyone’s best interests — public employees and taxpayers. We hold in our hands the key to enacting lasting, meaningful reforms that will help restore our pension and benefit system to solvency and rescue taxpayers from the responsibility of shouldering these mounting burdens.