2 clear choices to fix N.J.’s pension crisis | Opinion
By Thomas Byrne
I’m watching the state pension fund melt as the stock market drops.
The fund is well-diversified but domestic equities are still the largest single exposure. Ironically, the alternative investments which have produced good net results for beneficiaries are unpopular with many labor leaders because we are paying fees to outside experts rather than managing complex investments internally. But that is another story.
The fund balances are declining for two reasons. First, stock markets here and abroad have been bad for nearly a year. Second, our cash flow is negative as over $9 billion in annual benefits dwarf about $3 billion in contributions from the state and its municipalities.
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At the heart of the plan is to save over $2 billion in health benefit spending, using those savings to provide funding for pension benefits earned to date.
Bottom line — if I’m a public employee, I’m worried about my retirement and hopeful that politicians come up with realistic solutions before it’s too late.
Democrats led by state Senate President Steve Sweeney (D-Gloucester) have proposed a ballot referendum to constitutionally mandate large annual contributions into the pension system. Great for beneficiaries if it passes.
But the odds of passage seem slim; early polling shows that when the public realizes that it is likely to cause huge tax increases and/or major cuts to key programs, a majority would vote no.
Even assuming steady growth of over 3 percent in annual State revenues, and a millionaires’ tax raising $650 million a year beginning in 2018, and 60 percent of revenue growth being available for pension funding, and pension assets earning a steady 7.9 percent (unlikely), an additional $2.8 billion in new taxes on people other than millionaires will be needed by 2022 to pay for the current pension and health benefits.
The public will vote “No” on that amount of new taxes, particularly when it is to fund a level of benefits that they themselves could never get. With another year gone post-referendum, we’re billions more in the hole and pensions are that much less secure.
Some disagree, saying that the pensions are secure because even if the pension funds were to run dry, the state would be forced to pay retirees out of the state operating budget. It is misleading to represent that as fact. We simply don’t know. The state’s highest court has never ruled on this issue.
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Every year we don’t properly fund the pension system, the future cost goes up exponentially.
I’d hate to bet my retirement security on the premise that the court would either obliterate crucial state programs or essentially mandate huge tax increases by ruling that over 25 percent of the state budget, $9 billion of $34 billion, must be for pension payments. And even if a court did so rule, the possibility exists that the state would pay out in scrip rather than in cash. That is not far-fetched; Illinois and California have used scrip to some degree in recent years.
It should never come to this. There is another way.
The central tenet is that the state can honor all pensions accrued to date by aligning benefits to those in the private sector, and recycling the cost savings to fill the unfunded liability in the pension funds.
Sweeney: Christie’s pension commission’s proposed savings is a ‘fantasy’State Senate President Steve Sweeney met with the Star-Ledger Editorial Board to discuss issues, including how to solve the state’s public workers’ pension crisis. (Video by Andre Malok | NJ Advance Media for NJ.com)
Some of the savings involving health care are structural, and would have no cost to public employees. We should at least enact those reforms.
The rub is that other proposals require public employees to accept a lower level of benefits going forward. That is exceedingly unpleasant. But losing retirement security would be far more so. That is the choice. Denial will not solve this.
Benefit levels are far higher for New Jersey public employees than is common in the private sector. It is the Obama administration, not Republicans, that has said health benefits at the New Jersey level should be subject to a luxury tax.
So there are two paths.
Ask taxpayers to continue subsidizing a level of health benefits that even the Obama administration says is too rich.
Put those benefits at or near the highest level specified under Obamacare, and use those savings to fill the hole in the pension funds.
Certain Democrats say “just make the payments.” But when the governor asked a joint session of the legislature for a show of hands on who was willing to vote for higher taxes in order to do so, not a hand went up.
https://www.nj.com/opinion/index.ssf/2016/02/2_clear_choices_to_fix_njs_pension_crisis_opinion.html
