TRENTON, N.J. New Jersey lawmakers are preparing a constitutional amendment that, if approved by the Legislature, the governor and the voters, would ensure the Garden State meets its annual payments to a public pension system that is suffering a shortfall of at least $24.8 billion and climbing.
Two state senators Democrats Stephen Sweeney and Shirley Turner are readying the constitutional amendment that would bar any increases in pension payments unless funding for the increases are specified.
The bill would need to be passed by both houses of the New Jersey Legislature, signed by Gov. Jon Corzine and submitted to a vote at the next statewide election.
We need a constitutional amendment to protect the pension fund, Mr. Sweeney said in an interview. The government is making excuses for future payment. They played with the pension fund politically If what was done to the state pension fund had been done to a pension plan like mine, you would get locked up. Its criminal what they did.
Mr. Sweeney was referring to issues originating in the 1990s, as New Jersey relied on different allocation and accounting methods to avoid making adequate cash contributions into the pension funds a problem compounded by pension benefit increases.
If the amendment is passed by the Legislature, New Jersey would join 18 other states with constitutions that include provisions to protect pension funds.
The main feature of the proposed amendment would make it impossible to enhance the plan without establishing the funding source. The states already fragile funding situation was worsened in 2001, when the Legislature approved a 9% increase in state workers benefits a generosity Mr. Sweeney said was driven by political considerations but could not be afforded.
While the measure might not solve all of New Jerseys pension woes, it underscores that the situation is serious enough to warrant action sooner rather than later. New Jerseys mounting funding crisis could translate into a $70 billion shortfall in a matter of years, according to some estimates. The state has already skipped as much as $7 billion in pension fund payments in the past 15 years.
The bill will be submitted to Senate and Assembly committees on May 10, according to an aide to Mr. Sweeney.
In testimony April 19 before New Jerseys Assembly Budget and Appropriations Committee, State Treasurer Bradley Abelow spoke of the good, the bad and the ugly about the states pension system. He agreed there is no quick fix and the time is well past to revert to sweeping the problem under the rug The way forward requires a commitment to steady cash funding of the system, improved investment performance and mutually agreed steps to control growth in liabilities in the future.
Mr. Abelow put New Jerseys unfunded liability at $24.8 billion, more than double what it was three years earlier.
In addition to the unfunded pension liability, our actuarys preliminary estimate of the states future liability for post-retirement medical benefits for current and future retirees may be as much as a staggering $78 billion, the treasurer told lawmakers.
Mr. Corzine has promised a total contribution to the pension fund of $2.2 billion for fiscal 2007 and 2008, the same amount of cash contributions the state made to the fund from 1993 to 2006.
Contributions alone and this years proposed contribution is only 50% of the amount that is actuarially defined as full funding wont solve the problem of pension underfunding, Mr. Abelow cautioned.
To control long-term liabilities, Mr. Corzine has proposed to increase the retirement age to 60; currently employees can retire as early as 55 with 25 years of service. He also proposed capping benefits for top earners.
The New Jersey situation is an example of a government social welfare program that has promised more than its capability to fund. The solution is likely to entail reduced benefits in the future and possibly a restructuring of retirement benefits for state and local employees, but thats very difficult to do, said David Resler, a New Jersey resident and managing director and chief economist at Nomura Securities International Inc., New York.