NJ pension dilemma: Spend billions or wait decades for increases
TRENTON – Unless lawmakers bring back cost-of-living adjustments to public employee pensions sooner, it will be roughly a decade for local workers and two decades for state workers before their retirement checks get yearly increases to account for inflation.
Legislation that would restore cost-of-living adjustments to New Jersey pensions has more than two dozen sponsors in the Legislature and rated a mention at this week’s budget hearings – with the state treasurer cautioning it would come with a big price tag.
State Treasurer Elizabeth Maher Muoio said if the Legislature restores COLAs now, it would add $3.6 billion to what governments – and by extension, taxpayers – put into the system. But if it doesn’t, it’ll be many years until pensions are healthy enough to be raised, even with the state now finally making full contributions, as recommended by actuaries, for the first time in a quarter-century.
“On the state side, it differs slightly by fund, but it’s 20 or more years to get to 80% funded,” Muoio said.
“You mean it will take another 20 years to get there?” Sen. Sam Thompson, R-Middlesex, said. “… My God.”
Muoio said for the state section of the Public Employees’ Retirement System, PERS, which covers most state workers, it would be fiscal 2044 before the funded ratio reaches 80%.
For the Teachers’ Pension and Annuity Fund, TPAF, 2039.
For the state section of the Police and Firemen’s Retirement System, PFRS, 2043.
For the State Police Retirement System, 2040.
For the Judicial Retirement System, 2047.
It’s a bit better for local employees, as local governments didn't skip yearly payments like the state did: 2028 for police and fire and 2035 for other local workers.
“We’ve got to get to work on this thing and work something better out than that,” said Thompson, who is among the co-sponsors of the legislation that would restore COLAs, which were suspended as part of the pension reform law then-Gov. Chris Christie signed in 2011.
But restoring COLAs would add substantially to what is already a $6.9 billion state contribution to the pension systems in the current budget. The budget plan for fiscal 2023 would repeat roughly the same payment.
“We would see an increased payment by the state of an additional $2 billion,” Muoio said. “And for the locals, it would be an additional $1.6 billion.”
Thompson said “I realize that’s substantial money” but that retirees have gone eight years without a cost-of-living adjustment. It’s actually been longer than that, as they were suspended at the 2011 level.
“Thirty years from the time they retire, they’ll still not get a COLA?” Thompson said. “By God, 30 years of inflation. Now, we need to work something better out to this. I mean, that just doesn’t fly.”
Thompson said the state should have put $2.5 billion in unanticipated revenue it set aside to pay off bonds into the pension fund instead, erasing a long-term debt with a higher interest rate and a 30-year payment schedule.
He also suggested that the state examine cost-saving changes to the pensions of future public workers, perhaps as a way to offset the cost of restoring COLAs for current retirees.