Research by The Pew Charitable Trusts shows New Jersey has the second-largest pension fund deficit in the nation and underscores the urgent need to transition to a more sustainable hybrid system, New Jersey Business & Industry Association) NJBIA President & CEO Michele Siekerka said Friday.
According to Pew's nationwide research on the fiscal health of public employee retirement plans, New Jersey ranked 49th in the U.S. because its plans were only 36% funded. New Jersey is one of only five states with less than 50% of the assets needed to fully fund its pension liabilities, according to Pew's analysis of 2017 data.
"In the FY 2020 budget, New Jersey is making the largest single contribution ever to the pension system, but this doesn't address the root of the problem — the need to reduce the overall cost of the system itself," Siekerka said.
"The state must move forward with the recommendations of the 'Path to Progress' report in order to put the pension system on sounder long-term financial footing and ensure that the state still has money left in the future for essential state services such as public school aid, infrastructure and higher education," Siekerka said.
NJBIA supports the "Path to Progress" recommendation to transition to a more sustainable hybrid pension system for new employees, and those with less than 5 years of service, combining the best of a defined benefit and a defined contribution plan. Most private companies have already shifted their employees to defined contribution plans.
Another key recommendation is changing the health benefits system for state employees from platinum to gold-level plans comparable to the best plans offered by businesses in the private sector. The current platinum-level system provides actuarial coverage of 97% of total healthcare costs – the highest percentage of any government healthcare system in the nation.
If no action is taken, these costs are projected to grow by $700 million over the next four years, and 90% will be borne by taxpayers because the state self-funds its health plan, Siekerka said. Without comprehensive structural reforms, public worker pensions and retiree health benefits will consume 26% of the state budget by 2022.
The "Path to Progress" report was produced by the New Jersey Economic and Fiscal Policy Workgroup, comprised of economists, accountants and public finance experts. The workgroup was created by Senate President Stephen Sweeney to study how to fix the state's long-term budget challenges, which have led to state and local tax increases that are driving away business and hurting our economy.