Public Pensions and Benefits – Where Real Reform Needs to Happen

By Joan Verplanck, President, New Jersey Chamber of Commerce

Kudos to the legislature for their attempt to reign in the unsustainable costs of public pensions and benefits. * When times were good, it was easy to give away the farm – and officials on both sides of the aisle did exactly that. What we see in New Jersey is not unlike the crisis in the Federal Social Security Fund.

When the boomers were all working hard and the money was pouring in, it was easy to liberalize benefits to include subsidies that were never part of the original intent of the Act.

Now that there’s a tsunami of retirees moving through the system like a giant rodent in a snake’s belly, alarm bells are beginning to sound.

What’s happening in New Jersey is equally alarming. While public pay has increased significantly – in some cases surpassing private pay for the same job responsibilities – pensions and benefits haven’t reflected the change.

We used to tell ourselves that it made sense to provide extremely generous benefits if we wanted to keep good people in government; after all, they weren’t making that much in the way of salary.

Over the years, pay scales became competitive, yet we rarely looked at whether the rest of the package needed adjustment. We need to think about sustainability.

According to the state Department of Labor, between 2000 and 2008, New Jersey lost 6,500 private sector jobs. The public sector, on the other hand, created 54,200 jobs, with salaries and benefits paid by the taxpayers. The situation is out of balance, and major steps need to be taken if we are to regain our footing.

Freshly passed legislation, which we expect to become law, includes raising the minimum retirement age for new hires to receive full benefits from 60 to 62; changing the eligibility for new members of the teachers and public employees pension programs from $500 and $1,500, respectively, to $7,500 (this would be increased each year by the CPI); prohibiting out of state pension credit purchases from counting toward New Jersey post retirement medical benefits; allowing the state to provide employees an incentive to waive state health benefits if eligible for outside coverage; lowering the number of paid holidays for state employees from 13 to 12 by removing Lincoln’s Birthday; and requiring local government employees to work at least 20 hours per week to qualify for state health benefits.

It’s a start, but there’s a lot more to do.

The costs involved with continuing this largess are astronomical. They are the elephant (or donkey, if we want to be politically fair) in the room. Without significant reform that mirrors what every successful business has done in the last decade or so, it will only get worse.

Let’s talk about raising the retirement age to 65 or, better yet, tie it to the Social Security retirement markers. Want to retire early? Fine. Your benefit will be less, but you’re welcome to take it. Let’s replace the pension/401(k) hybrid for new hires with a straight 401(k) plan.

For the life of me, I can’t imagine why the unions want to add future employees to a pension fund that may not be able to meet the needs of those already in it.

Current new hires are offered the standard state pension for their earnings up to the Social Security cut off – then offered a 401(k) in addition, for the balance of their earnings. Let’s phase out lifetime benefits for retirees, as has been done successfully in the private sector.

And, if we really want to get serious, let’s negotiate one contract statewide for anything paid for by the state. It’s asking for trouble to allow local negotiations for state responsibilities.

There are 511,755 state, county and municipal workers, as well as 176,000 teachers in New Jersey. The numbers are huge. Surely we can draw a line that keeps current agreements in place while altering the landscape significantly for those who haven’t even been hired yet. If I were a union member, I'd advocate for this.

*Between 1999 and 2003 alone, there were 17 instances where the Legislature enhanced benefits at a cost of $6,800,000,000.

June 2008