The pension reform bill that the New Jersey legislature and Governor have agreed on can be read in its entirety, here. The main reforms include increasing employee contributions to pensions, freezing the automatic COLA and requiring that local and state governments make their Annual Required Contribution (ARC) to the plan - and giving workers a "contractual right" that ensures this payment is made on a timely basis. On the health care front, workers will contribute more of their salary to their benefits. In four years, health benefits become a matter for collective bargaining again.
One reform that I am not sure does much is creating a committee to oversee the pension system. When the system reaches between 75 and 80 percent funded the committee will "have discretionary authority to modify the member contribution rate, formula for the calculation of final compensation or final salary; fraction used to calculate a retirement allowance age at which a member may be eligible and the benefits for service or early retirement and the benefits provided for disability retirement." Given the mismeasurement of liabilities this means they will only have reached 35 to 40 percent funded at which point policy changes may be undertaken that could weaken the system.
The reforms, in particular the COLA freeze, will buy New Jersey some more time. The size of the unfunded liability in the pension system is several times larger than is officially recognized. What is of paramount importance is that both state and local governments account for their liabilities and assets accurately. Recourse to high discount rates and asset smoothing produces a distorted picture of fund health and leads to other behaviors that can destabilize plans. The Governor and Legislature acknowledged and addressed one of those behaviors - the pension holiday - by making the ARC a contractual issue. While there is union opposition to these reforms, they must be evaluated relative to the size of New Jersey's unfunded liabilities and what is needed to ensure accrued benefits are paid.
The reforms, in particular the COLA freeze, will buy New Jersey some more time. The size of the unfunded liability in the pension system is several times larger than is officially recognized. What is of paramount importance is that both state and local governments account for their liabilities and assets accurately. Recourse to high discount rates and asset smoothing produces a distorted picture of fund health and leads to other behaviors that can destabilize plans. The Governor and Legislature acknowledged and addressed one of those behaviors - the pension holiday - by making the ARC a contractual issue. While there is union opposition to these reforms, they must be evaluated relative to the size of New Jersey's unfunded liabilities and what is needed to ensure accrued benefits are paid.
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