A switch to a 401(k) retirement plan from its current defined benefit plan would add $42 billion to New Jersey's pension debt, a liberal think tank said Tuesday.

New Jersey's unfunded pension liability is 46% of its total liability, according to "Status Report of the New Jersey Pension and Health Benefit Study Commission," released by New Jersey Policy Perspective, a group that says it's been "advancing progressive policies since 1997." The state government's total unfunded pension liability is $37 billion, which is more than this fiscal year's state budget of $32.5 billion.

On Aug. 1 New Jersey Gov. Chris Christie, a Republican, appointed a New Jersey Pension and Health Benefit Study Commission to come up with ideas to make the state's pension and health benefit financial situation stronger and more affordable. In late September it released a report describing these systems' financial problems.

While that report didn't make any recommendations to address the problems, it did praise several other states that have introduced hybrid plans with defined contribution plans, which usually use 401(k) plans. The commission plans to make its recommendations later this fall.

The rating agencies have cited the state's poor pension funding levels in explaining their repeated downgrades of the state's general obligation rating. New Jersey's GO is currently rated A by Standard & Poor's and Fitch Ratings and A1 by Moody's Investors Service.

In the report that the New Jersey Policy Perspective issued Tuesday, Stephen Herzenberg noted that Pennsylvania had conducted studies of pension plans with the same unfunded liabilities and pension assets as New Jersey has. These studies found that closing existing pension plans to new employees would increase pension debt by $42 billion.

"Given the nearly identical size and funded status of New Jersey's plans, $42 billion is close estimate of the cost of a switch to 401(k)-type accounts in New Jersey," Herzenberg wrote. Herzenberg is an economist with the Keystone Research Center, a Pennsylvania think tank that co-sponsored the New Jersey pension report. "Most states that have considered switching employees to 401(k)-type accounts have rejected doing so because it risks putting a severe burden on taxpayers," Herzenberg said. "The three states that have actually gone forward have seen pension debt mushroom. It's a policy prescription that New Jersey taxpayers simply can't afford."

The NJPP report also shows that, per dollar invested, defined contribution systems deliver less income to retirees than do pension based system. This is because with defined contribution plans, individuals invest less wisely than do pension plan financial administrators. It is also because individuals have to pay higher fees to financial firms handling their money.

In their report, the Christie-appointed commission wrote, "This report is designed to be primarily factual and explanatory in nature." Yet the commission indicated that it believes state government pension and health benefit benefits must be further decreased from the reduced levels agreed to in the 2011 pension agreement. It stated, "As former Gov. Jon Corzine pointed out, 'on pension and health care issues, our career employees, and the public, must recognize that current benefits are financially unsustainable.'"

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