The New Jersey Supreme Court on Thursday ruled constitutional a 2011 law suspending cost-of-living adjustments for retirees covered by the $70.9 billion New Jersey Pension Fund, Trenton.
“We conclude that the Legislature retained its inherent sovereign right to act in its best judgment of the public interest and to pass legislation suspending further COLAs,” the court ruling said.
The 6-1 vote is a victory for Gov. Chris Christie and welcome news for bond rating analysts, who worried that a pro-retiree ruling would have thrown an already shaky pension system and state budget into a tailspin. New Jersey already has the second-lowest bond rating of states.
Thursday’s decision “eliminates a major threat to the state’s fiscal stability, which is already challenged by narrow reserves and large, rapidly growing pension costs,” said Baye Larsen, vice president and lead analyst for New Jersey at Moody’s Investors Service, in an e-mailed statement.
“A negative ruling would have made things much worse,” David Hitchcock, senior director and primary analyst for New Jersey at Standard & Poor’s Ratings Services, said in an interview. “We still feel they’re under pressure.”
The COLA freeze had been challenged by public employee unions and other plaintiffs who argued that cost-of-living-adjustments deserved the same constitutional protection as pensions. Mr. Christie maintained that COLAs weren’t covered.
“This is theft, plain and simple,” said Wendell Steinhauer, president of the New Jersey Education Association, in a statement posted on the association website. “Our members were promised a COLA as part of their compensation, and they did the work required to earn it. … The state should not be able to decide after the fact not to pay them for that work.”
Mr. Christie had argued in a legal brief filed with the state Supreme Court that overturning the COLA freeze would have forced the New Jersey Pension Fund to recognize $17.5 billion in additional unfunded liabilities.
In legal documents, public employee unions had argued that COLAs were a “non-forfeitable right” — a contract protected by the state constitution.
In its Thursday ruling, the court said: “In this instance, proof of unequivocal intent to create a non-forfeitable right to yet-unreceived COLAs is lacking. Although both plaintiff retirees and the state advance plausible arguments on that question, the lack of such unmistakable legislative intent dooms the plaintiffs’ position.”
The COLA freeze was part of a 2011 law representing a bargain between the Republican Mr. Christie and the Democratic-controlled state Legislature. In return for several legislative changes to the pension system, such as freezing COLAs and raising retirement ages for some public employees, Mr. Christie promised to make regularly scheduled yearly state payments to the pension fund.
Public employee unions sued over the COLA freeze, but a state court judge dismissed the complaint. However, a state appeals court ruled in July 2014 that the COLA law created a contractual right for pension plan retirees to receive annual cost-of-living increases. Mr. Christie appealed that decision.
Mr. Christie reduced the state pension fund payment for the 2014 fiscal year, an action that was upheld by a state Superior Court judge, and he reduced the 2015 fiscal year payment, an action that was upheld by the state Supreme Court. The U.S. Supreme Court declined to review the case.
