By Charles Wowkanech and Hetty Rosenstein
February 21, 2016
Gov. Chris Christie often says he wants public-sector benefits to mirror what's offered to employees in the private sector. However, the governor won't dare mention that shorting pension funds in the private sector is illegal. Only in government can Christie get away with flouting his pension obligation without legal ramifications.
For all Christie's bluster about "exhorbitant" benefits plans, the truth is that New Jersey's average yearly pension benefit of $26,000 is among the nation's least generous — 95th in benefit generosity out of America's 100 largest pension funds. And he doesn't tell you that the average New Jersey government employee pays more out-of-pocket for individual health insurance than government workers in any other state.
The governor flat out isn't being factual when he claims a typical government employee pays $126,000 toward pension and health benefits and receives $2.4 million in return.
The average state worker earns about $65,000 a year and pays $7,600 for family health insurance and $4,875 toward retirement, for a total of $12,475 a year. The employee's pension contribution, plus the amount the state is supposed to match, have 30 years to generate interest.
By the time the employee retires at age 65, he or she will have paid $374,250 for pension and health benefits. Earning a pension of $35,000 a year and receiving individual medical coverage worth $6,200 a year in today's market, the worker would have to live 58 years after retiring to reach $2.4 million in benefits. Christie's calculations would have workers living well into an age when they'd be able to see their own grandchildren become grandparents.
The New Jersey Supreme Court last year ruled that pensions are deferred compensation and must be paid. In other words, employees in the state pension system are pushing off a portion of their earnings until retirement. If New Jersey keeps skipping payments, or making partial payments (as Christie has proposed again next year), we will pay more later. Taxpayers will be on the hook for $3 for each $1 Christie is skipping now.
For 20 years, governor after governor, Republican and Democrat alike, shirked their responsibility and made the calculated choice to not fund the pension system. The current governor broke not only his word, but his very own law. Christie followed the playbook of the super-wealthy by giving billions of dollars in tax cuts to profitable businesses, widening the income gap and shrinking the middle-class.
Any portion of that money could be directed to fulfilling the pension obligation rather than corporate welfare. The only way to ensure future governors make required payments is to make it illegal not to, just as it is in the private sector Christie so desperately wants to emulate. We can do so without raising taxes on the middle class.
The elephant in the room is how to pay for pensions without cutting everything else. Christie's crew will have you believe taxes will soar and the sky will fall if the state is required to meet its pension obligation.
That's simply not true.
Christie leaves out how the unfunded liability could be cut in half — yes, half — by reducing fees and bonuses we pay Wall Street investors and by making the pension payment in quarterly installments rather than in a lump sum.
The first step is to reign in more than $700 million in fees and bonuses paid to investment managers annually to oversee 30 percent of the pension portfolio. These alternative investments have underperformed, failing to justify their astronomical cost. In comparison, 70 percent of the portfolio is managed in-house on an $11 million yearly budget. Scaling back this part of the portfolio over the next two years and investing the $500 million in annual savings would shrink the $80 billion unfunded liability by $27.5 billion in 30 years.
And if New Jersey began making its yearly pension payment quarterly instead of waiting until the last day of the fiscal year — legislation Christie vetoed — we'd reduce the liability by another $13.1 billion.
About 70 percent of pension fund growth comes from investment returns. So, making the full annual contribution is crucial to the system's health. The fund's future is also reliant on slow, steady growth in state revenues. With sound fiscal management, New Jersey can fully fund pensions without straightjacketing finances or raising taxes on anyone but the very wealthiest 1 percent. And frankly, that's only fair after we've handed tax relief to the uber-rich at the expense of pensions for 20 years.
We don't have to destroy the pensions of 800,000 active and retired public workers. And we don't have to dump billions of dollars of liability onto local property taxpayers.
If we are to truly follow Christie's lead by making public pensions more like the private sector, let's start by making it illegal for the state to ignore its full funding obligation.
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