NJ Commission Prescribes Tough Medicine to Address Pension Woes

By John Iekel • March 05, 2015 • 0 Comments
The New Jersey Pension and Health Benefits Study Commission has issued its findings and proposals for how the Garden State can address its seemingly intractable state pension funding problems.

In a manner similar to the brash style of New Jersey Gov. Chris Christie (R), who created it, the commission does not mince words in the proposal, calling for “shared sacrifice” and “willingness to let go of a failed status quo,“ a status quo it calls unacceptable “given the gravity of this crisis.” It adds, “The need for urgency in adopting a solution cannot be overstressed. The already narrow window for a reasonable solution is closing fast.”

The commission recommends:

  • freezing the existing pension plans;
  • aligning future public employee retirement benefits with private-sector levels;
  • aligning public employee health benefits with private-sector levels to control those costs before they make pension problems even worse;
  • fairly realigning state and local responsibility for new and sustainable pension and health benefits;
  • locking in fixed and certain pension funding with a constitutional amendment;
  • transferring the assets, liabilities and risks of the existing pension and new retirement plans to employee entities willing and able to assume this obligation; and
  • allowing those who receive the benefits to have the power and assume the risk of managing the plans.

The commission warns that absent decisive action, the state will have to resort to “crushing“ tax hikes and deep cuts to employee benefits and public services. And it spelled out in stark terms what such an approach would mean. It would take a 10% sales tax or a 29% income tax increase to fill the $3.6 billion annual pension funding gap, the commission projects.

Adoption of its plan, the commission says, “would stabilize the public employee pension system for at least 35 years — and longer if the lessons are learned from the past mistakes that caused this crisis.”

Gov. Christie established the commission last August to evaluate how New Jersey can create cost-effective, affordable and sustainable retirement and health care systems for public employees. Among the commission members is ASPPA member Dr. Ethan Kra of Ethan E. Kra Actuarial Services, which specializes in analyzing the economic and accounting implications of financing strategies and vehicles for employee and executive benefits.