By Charles Wowkanech
Trenton, New Jersey – For the past five years, New Jersey's public pension system has been a punching bag for a governor seeking the national spotlight. In 2011, Gov. Christie acted like he was extending a hand to help the seriously underfunded pension system back to its feet, while he actually was winding up to deliver another blow.
Nearly 800,000 current and retired public employees have been watching this spectacle from the sidelines. The result is a pension system in such bad shape it's caused the state's credit rating to drop nine times under Christie's watch. This isn't just a public employee problem. Taxpayers are paying millions of dollars more when the state borrows money (which it does all the time) because of the governor's fiscal irresponsibility.
When it comes to pension funding, New Jersey is the nation's biggest deadbeat. The National Association of State Retirement Administrators reports that in the 13 years ending in 2013, New Jersey shortchanged pensions more than $23 billion by making just 38 percent of its required contribution. This is the worst contribution rate in the country. Imagine the balance you'd run up by paying just 38 percent of your credit card bill … for 13 years. The average pensioner here receives $26,000 per year after a career in public service. Despite the governor's rhetoric, New Jersey's pension benefits rank 94th in generosity when compared with the country's 100 largest plans, according to a New Jersey Policy Perspective/Keystone Research study.
Everyone except Gov. Christie agrees that the best pension fix is for the governor to start complying with the law he signed in 2011 and make the statutorily required pension payment every year. The law required everyone to make sacrifices to restore the system; and everyone has – except Christie. Employees saw their pension contributions rise to 7.5 percent of their pay, retirees forfeited cost-of-living increases, local governments paid their full share, and the Legislature sent the governor balanced budgets with full pension funding, which he vetoed.
Recognizing the grave financial reality New Jerseyans, retirees and the state's economy will face if the state pension system goes broke, we propose a realistic path to meet pension obligations. That's right – despite the governor's rhetoric, the New Jersey State AFL-CIO and its affiliated unions are leading the search for solutions to this vexing problem. If enacted, the measures below would net the pension system up to $1.6 billion a year without costing 99 percent of New Jersey residents a dime.
– Phase out Wall Street fees from alternative investments. New Jersey paid $600 million last year to Wall Street pension fund managers, nearly eating up the state's entire contribution. The Wall Streeters got us no better returns than in-house money managers, according to a national fund management analyst. This is Robin Hood in reverse – taking retirement money from police officers, firefighters, teachers and public employees to reward Wall Street financiers. If the system had stuck with the Standard & Poor's 500 instead of private equity, and a 60–40 stock/bond mix instead of hedge funds, it would be $2.4 billion richer. It's time to responsibly divest from these alternate investments.
– Front-load the pension payment. Making the pension payment at the start of the fiscal year rather than at the end of the year would allow the investment 11 additional months to earn interest. If this year's $1.3 billion contribution (which is $1.8 billion shy of the amount the law requires) were invested now rather than next June, the pension system would net $87 million, after borrowing costs. The Legislature passed a resolution endorsing this concept, but the governor has failed to act.
– Put a millionaires' tax on the ballot. Adding a surcharge to an estimated 17,000 tax filers on incomes over $1 million would generate about $600 million for the pension system. Christie says millionaires are leaving New Jersey, but there are 4,000 more of them now than when he was elected. Christie has consistently vetoed a millionaires' tax, but voters overwhelmingly favor it. The Legislature must act where Christie won't by putting the question to voters. A newspaper poll taken in June showed two-thirds favored taxing the wealthiest to meet the pension obligation.
– Dedicate any unanticipated revenue to pensions. The non-partisan Office of Legislative Services estimates the state ended the 2015 fiscal year with an extra $300 million in revenue. A bill on the governor's desk would send the unanticipated revenue to the pension system, where it would generate interest. The governor failed to act on this bill as well.
These common-sense measures would add as much as $1.6 billion per year to the state pension system, and would be a big step toward restoring a financially stressed system and giving hundreds of thousands of workers peace of mind about their retirement.
*** Charles Wowkanech is the president of the New Jersey State AFL-CIO representing more than 1 million members and their families. This opinion article first appeared in The Times of Trenton on July 19, 2015