NJ.com - With the state Supreme Court's decision behind us, it is time for New Jersey to get down to business on public employee benefit reform. The fact that the New Jersey Constitution does not compel the governor to make pension payments going forward does not eliminate the overhanging pension deficit. Similarly, the fact that deficit is due more to decades of non-payment does make the math of "make the payments" more workable. Indeed, the "usual suspects" for potential new revenue – a millionaires' tax, corporate tax surcharges and cuts in economic development aid – fall far short of the $1.6 billion needed to make even the $2.3 billion 2015 payment. Nor has anyone suggested how to raise the additional $2-plus billion a year needed to make payments which will increase to $4.3 billion by 2018, or to fund the annual $300-plus million increase in health benefits costs.
|Garrett McCaffrey holds up his sign during a rally to protest Gov. Chris Christie's funding reductions to public pensions. Trenton, NJ 5/12/15. (Photo by Adya Beasley | NJ Advance Media for NJ.com)
The lack of any realistic means of financing existing pension benefits is what led the New Jersey Pension and Health Benefit Study Commission to recommend that the state pay for retirement benefits with funds made available by reining in health benefits spending. That tab has spiraled out of control for a number of reasons. The current health benefits plans are overly generous and poorly designed. New Jersey public employees have 96 percent of their cost of care paid for by their health plans, compared to 91 percent for other public employees and 83 percent for employees of large private employers. The premium structure of the plans provides no incentive for members to select anything but the most expensive policy, or to become educated or efficient health care consumers.
In addition, New Jersey public employees make below average premium contributions for above-average benefits. While some pay up to 35 percent of the cost of their premiums, on average, they pay 18 percent of premium costs, compared to a 24 percent national average for large public and private employers. Furthermore, New Jersey provides retiree health benefits without premium contributions, even for employees who retire before Medicare eligibility. In contrast, most private sector employers do not offer retiree health benefits, and most public employers require significant contributions for this coverage.
As the commission's final report emphasized, state and local pension and health benefits cannot be viewed as four separate and independent costs, money spent on health benefits cannot be spent on pensions or money spent at the state level cannot be used for local property tax relief. The unified state/local approach to benefit reform proposed by the commission would preserve high quality benefits while reducing state costs to a manageable level. Applying these reforms locally would yield sufficient savings to permit local governments to fund teacher retiree health benefits without increasing New Jersey's already onerous property taxes.
As the commission's report also makes clear, and the state Supreme Court's decision underscores, it is preferable that any solution have the buy-in of the voters who will foot the bill and bear the consequences. Effective reform will require reducing benefits, providing a reliable funding source and cost-neutral shifting of some obligations. Such a deal can only be the product of a consensus reached by people of good will working together. While any plan can be improved and suggestions are welcome, the commission's proposal is a workable template for solving the state's pension and health benefits funding crisis in a manner fully consistent with the court's ruling. Immediate action may be New Jersey's last, best chance to get its health benefits costs under control and put the state on the road to not merely stabilizing its pension deficit, but retiring it.
The alternative, clinging to old ways that have proven unworkable, will doom New Jersey to the fiscal disaster. The choice between chaos and the practical solution offered by the commission is clear.
Thomas J. Healey was asked by Gov. Chris Christie to coordinate the work of the bipartisan New Jersey Pension and Health Benefit Study Commission.
This article appeared on NJ.com authored by Thomas J. Healey.
Response by Eddie Donnelly, President, NJFMBA: It is the sort of thinking that Thomas Healy offers in this op ed that is keeping us from truly understanding and articulating the distinct differences and the truths about our pension system.
He suggests that in order to reach a ‘deal’ on pension reform we need the good will of all parties working together, yet throughout the time the Commission he chaired met they failed to seek the input of those most effected by the work they were undertaking. And to this day, despite repeatedly making myself available, on behalf of the more than 5,000 firefighters, EMS workers and dispatchers represented by the NJ FMBA, I have yet to hear from the Governor’s office regarding my offers to meet with them directly to discuss our concerns.
Additionally, Healy suggests that the “old ways” of managing the pensions of public workers have proven unworkable, necessitating the changes they suggest which would essentially pool the entire system, right now comprised of 5 distinct components, into one pot. This couldn’t be further from the truth. The PFRS, the plan which our members are enrolled in, and have increased our own contributions to by nearly 20%, is, by actuarial standards, healthy. This is also largely due to the fact that the local governments that employ us, have faithfully made their contributions to the system as well. It is clear, paying your bills matters!
Finally, again he makes the worn out argument that by private industry standards the retirement and health care security that our jobs provide are too generous. If he is going to make this comparison it’s unfair to only use this tiny snapshot. He fails to mention the extraordinary risks of the jobs we perform. Yes, we signed up knowing those risks, and with that we believed was a solemn vow that in return for our service we’d be protected in our retirements, and have meaningful healthcare available to us. He also neglects the fact that most professional firefighters, in our retirements, do not benefit from the Social Security system that most other American workers do.
I will continue to speak out, or shout out if necessary, to anyone willing to listen, and act responsibly, that our members deserve better. Our active and retired members have sacrificed much for the financial mismanagement made over time by several Governors. I know you will continue to join me in these efforts. Please share this widely so that our state’s decision makers know again that we are not going to sit back and let them denigrate our service to community, attack our pensions and decimate our much needed healthcare.