A proposal from the New Jersey Pension and Health Benefit Study Commission provides a "roadmap" to address high costs associated with the state's retiree benefit programs, according to Build America Mutual.
The Commission's Feb. 24 final report proposed freezing pension benefits for current state employees and shifting them to a new cash balance defined benefit plan. The commission’s plan would also shift the costs of new teacher pension benefits from the state to the local school districts.
"The scale of the changes is substantial, but the Commission's plan design concepts are judicious and provide a comprehensive road map for addressing the challenges facing the State's retiree benefit programs," said Les Richmond, an in-house pension actuary at BAM, in a commentary released on March 2. "BAM believes that from an overall credit perspective, the implementation of the Commission's plan would be positive for the State."
New Jersey Gov. Chris Christie announced support for the commission's proposal during his Feb. 24 budget address. The Republican governor vetoed a $1.57 billion pension payment from the state budget last June citing fiscal challenges, prompting a lawsuit from multiple public unions. New Jersey State Superior Court Judge Mary Jacobson ruled in favor of the unions in a Feb. 23 decision that said the state's pension contributions are contractually protected.
If Christie is able to get legislative approval for the pension reform plan, a constitutional amendment would go before voters in November and be implemented for the 2017 fiscal year if it passes. The New Jersey Education Association, the state's largest teacher's union, has said it is open to supporting some key concepts in the report.
"The result of the plan would be to provide pension and health benefits to workers and retirees that are similar to those provided to private-sector workers and to establish a secure, sustainable funding stream to pay for those benefits," said Richmond. "What the Commission produced is an extremely well thought out, creative set of actions that could, if fully implemented, accomplish its goal of solving New Jersey's well-known underfunding issue."