Falling Into the Gap: The Pension Crisis

Supreme Court decision on pension deal opens new debate over unfunded liabilities.

Wendell Steinhauer, president of the New Jersey Education Association, reacts to the Supreme Court's decision on pension funding.
Wendell Steinhauer, president of the New Jersey Education Association, reacts to the Supreme Court's decision on pension funding.
Photo by Jennifer Marsh

The state Supreme Court’s June 9 ruling—that Governor Chris Christie’s administration is not obligated to make the payments into the state pension system it promised under a 2011 law—could affect virtually all New Jerseyans, not just teachers and other public employees.

The complicated decree is based on the court’s interpretation of constitutional law. The bottom line: New Jersey is $40 billion short of what it needs to fully fund benefits for our public employees. Where do we go from here?

A recent report released by the New Jersey League of Municipalities and the New Jersey School Boards Association states that since Christie’s pension-reform plan would shift the cost of teachers’ pensions from the state to local school districts, there could be a ripple effect of potential property tax increases for homeowners. Further, teachers would have to continue to pitch in more under the plan, which calls for them to pick up a larger share of their health care costs.

Christie believes the pension system must change. Taxpayers, he says, can’t “afford these unsustainably high costs” of the current system.

But Steve Wollmer, director of communications for the New Jersey Education Association, the state’s largest teachers’ union, says the state can indeed afford to close the pension gap—if it looks in the right place. “There is money,” says Wollmer, “but the governor just doesn’t want to spend it on what we want him to spend it on. He refuses to reinstate the millionaire’s tax. There are places to go for this revenue.”

So what will happen if the state continues to underfund the pension system the way it has done for the past 10 years—and the way Christie is proposing we continue to do? “In 12 to 14 years, the entire system would go belly up and run out of money,” claims Wollmer. “There are 800,000 people who either work under the system or are retired under the system. If the pension funds are allowed to fail, these same people will eventually not contribute to the economy and could wind up needing assistance from the state.”

Yet, on June 26, Christie—after vetoing $1.6 billion from the budget he received from the Democrats—signed a $33.8 billion budget that does not reduce the pension fund’s unfunded liabilities. While Democrats were pushing for a $3.1 billion pension payment, Christie cut that back to $1.3 billion, covering only the retirement costs of employees currently in the workforce.

Christie says the state does not have the money to make the full pension payment and offers the following example as an illustration that our current system is broken:  “Take the average teacher in New Jersey that works 30 years. That average teacher puts $84,000 into the pension system over their 30-year career…and they take out $1.1 million over their lifetime. The average teacher in New Jersey who gets family health coverage pays $111,000 over their 30-year career for that health coverage, and the cost of that health coverage is $1.5 million. So the average teacher pays $195,000 for their pension and health care and gets out $2.6 million in benefits.”

On those grounds, the governor argues it is time to renegotiate, but the NJEA and other public-employee unions are in no mood to sit down at the bargaining table because, according to Wollmer, many public employees feel the state is stealing from them. He says that over the past 10 years, public employees have put $10 billion in the pension fund, while the state has contributed $3 billion.

Clearly, the situation doesn’t add up. Now, both sides are likely to dig in their heels—and the pension crisis will remain unresolved. You can count on plenty of finger pointing and scapegoating, which is this last thing we need in the Statehouse these days.

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