Sweeney: Restoring Pension COLAs Would Bankrupt NJ System
Updated On: Sep 18, 2015
BERG V. STATE OF NEW JERSEY: Two dozen retired government attorneys sued the state in 2011 for freezing retirees' cost-of-living adjustments. Labor unions later joined the suit. STATUS: The state Supreme Court in July agreed to hear case. The question before the court is whether cost-of-living adjustments are part of workers' non-forfeitable contractual rights. (Scott Eells | Bloomberg)
NJ.com - TRENTON — New Jersey's faltering public-sector retirement system would be swamped by new pension liabilities if the state Supreme Court strikes down cuts to retirees' pension benefits, the state Senate president said this week.
Those cuts were a critical piece of a 2011 overhaul of government worker benefits expected to save tens of billions of dollars over the coming decades. A group of retired state workers brought a lawsuit against the state challenging a freeze on cost-of-living adjustments in their pension payouts.
State Senate President Stephen Sweeney (D-Gloucester) told The Star-Ledger's editorial board Thursday that a victory for the retirees and the restoration of COLAs would bankrupt the pension system, but he predicts the state will prevail.
"I don't think they win it, to be honest with you. And I think it would cause the bankruptcy of the pension system," he said.
Sweeney's comments follow remarks from a Wall Street rating agency last week that a court decision overturning the COLA freeze could put downward pressure on New Jersey's credit rating.
The freeze was part of a 2011 pension law that raised the retirement age and required workers to pay more for their pension and health benefits.
At the time the law was passed, the suspension of COLAs, which are tied to increases in the consumer price index, was estimated to account for $74 billion of the $122 billion those reforms were expected to save the system over 30 years. A Treasury spokesman, Christopher Santarelli, said Friday the department did not have more updated estimates.
COLAs have been a target in a number of states looking to reduce their pension liabilities.
Two dozen retired government attorneys sued the state in 2011, saying their benefits were protected by a statutory nonforfeitable right to pension benefits that was granted to workers in 1997. Labor unions later joined the suit.
Charles Ouslander, a plaintiff in the case, estimated skipped cost of living adjustments since 2011 would cost the state slightly more than $1 billion.
"I don't think that if COLAs are reinstated it will bankrupt the system," Ouslander said Friday. "I do think it it will deplete the fund that much sooner, and frankly if that provides a sense of urgency as to how they're going to fix the funding problem, then so be it. This should light a fire under everyone."
Retirees lost at the trial court level after the judge found that, based on a clause that gives lawmakers and governors discretion over annual state spending, the state could not be forced to pay the increases. The appellate panel disagreed, saying "pensions are neither funded by appropriations on a pay-as-you-go basis... nor is their payment contingent on the making of a current appropriation."
The state's high court in July agreed to hear the case.
Earlier this summer, the state Supreme Court overturned a portion of the same 2011 law that obligated the state to certain annual pension contribution levels. Sweeney, along with Assembly Speaker Vincent Prieto (D-Hudson), sided with the workers, who argued the Christie administration had failed to live up to the terms of the deal and violated their contractual right to pension funding.
But Sweeney stands by the cuts to the COLAs, which is part of the 2011 law he and Gov. Chris Christie crafted in the face of fierce opposition of public labor groups. Under the law, the COLAs can only be reinstated when the pensions system was deemed fiscally fit.