New Jersey's public pension fund is a terrible black hole of debt and unfunded obligations, a familiar story for those who follow various state pension crises. The state is $60 billion short to pay off its pension commitments and it would consume 15 percent of the state's budget each year until the year 2049 to get it back into balance.
It looks like some New Jersey lawmakers are trying to make the problem even worse and undo at least one attempt to defuse this ticking time bomb.
In 2007, New Jersey shifted elected officials from the state's pension fund to a defined contribution 401k-style program. This is better for taxpayers than pensions—the state contributes into the fund up front and is not committed to any payments to the official after he or she retires. That post-retirement commitment is what has been causing the pension crises—states and municipalities are obligated to pay out specific amounts that exceed what the funds contain (due to undercontributing or fund underperformance), and taxpayers are expected to make up the difference.
These officials don't lose the pension commitments they've already earned under the former retirement system. They'll get those payments when they retire. And now they're saving under a different system.
The state had already wimped out last year and passed another bill allowing officials back into the pension system and to buy back the lost time. Now a new bill introduced in New Jersey by Assemblyman John McKeon (D-Essex) would allow lawmakers who had previously been earning pensions to go back and have their pensions recalculated with their current earnings, position, and time worked without actually re-enrolling into the pension system.
That is to say, when they retire, they'd "earn" pension payments from a time they weren't actually in the pension system. They'd get their 401k payments. But who would pay for that gap during which they weren't contributing into the pension fund at all? Who do you think? Spoiler: Not them. Politico notes today:
Despite the improved benefits, the bill would not require the officials to pay any more into their pensions than they already have.
"This is crazy," said Fred Beaver, who directed the New Jersey Division of Pensions and Benefits from 2002 to 2010. "The whole thing is screwy. It makes no sense. It's a total gift. Nobody is paying for it."
Beaver said the bill could have a major impact beyond pensions: increasing an elected official's years of service in the pension system could also qualify him or her for lifetime retirement benefits from the state.
While New Jersey's average pension for government employees is $31,000 a year, the state has nearly 3,000 retirees (or their beneficiaries) earning six-figure pensions.
This legislation by McKeon is the exact opposite of what the state needs to be doing. It might not even get passed. But it's worth taking note of this as an example of how hard it is to reform under-funded pension systems when the people responsible for doing so are more interested in making the problem worse.