As inflation soars, restoring cost-of-living pension hikes for N.J. public workers gets new life
"By God, 30 years of inflation. I mean, that just doesn't fly," said one lawmaker
By Brent Johnson
TRENTON, N.J. — As the U.S. continues to face soaring inflation, a decade-old debate over restoring automatic cost-of-living adjustments to the pensions of retired government workers in New Jersey is bubbling again.
On one hand, there’s concern for hundreds of thousands of former employees who have already gone more than 10 years without seeing their pension checks increase to offset inflation — a freeze that was part of a famous law then-Gov. Chris Christie signed in 2011 to bolster the state’s debt-ridden pension system.
State Sen. Shirley Turner, D- Mercer, long the sponsor of a bill that would revive the adjustments, known as COLAs, said these are retirees who were counting on those hikes and are now finding it even harder to survive when “everyone is experiencing pain at gas pumps and grocery stores.”
”It wasn’t the employees’ fault the pension is in the condition it is,” Turner said. “These people are being hurt.”
Meanwhile, New Jersey’s state treasurer said last week it could be another 10 to 20 years before the pension system reaches the funding level at which restoring COLAs is allowed under that 2011 law.
On the other hand, state estimates show bringing the adjustments back now could add many billions to the unfunded liability of a pension system that’s been making significant gains in recent years — with Garden State taxpayers shouldering the cost.
In an interview last week with NJ Advance Media, Christie called restoring COLAs now “an awful idea at the wrong time,” saying it would undermine the state’s progress on pensions and stressing the law he signed allows the adjustments to return once the system is in better financial shape.
“Using current inflation issues as the excuse for it is just baloney,” he said. “The only people that are gonna get hurt in the long run are the taxpayers of the state.”
Former state Senate President Stephen Sweeney, a Democrat who worked closely with Christie on the bipartisan pension reforms, agreed. He said the move would be “insane.”
“We’re talking about affordability, and you’re gonna do this now? I’d love to get the workers a COLA, but we’ve got to pay for it,” Sweeney told NJ Advance Media.
At the crux of the issue is Turner’s bill (S260) that would end the freeze, one of the most hotly contested parts of the 2011 overhaul. The senator has introduced it every legislative session since Christie signed the law.
The measure has gone nowhere, never even receiving a hearing. But it has suddenly gained two dozen sponsors — both Democratic and Republican — in recent weeks.
Officials say retirees are pushing lawmakers to reconsider the issue as the annual rate of inflation has surged to about 8%.
It also comes as lawmakers from both parties vow to make New Jersey more affordable after a contentious November election that saw Democrats maintain control of the state Legislature but Republicans gain seven seats.
In addition, it comes just weeks after Democratic Gov. Phil Murphy introduced a state budget proposal flush with billions of dollars in revenue, federal aid, and record spending, including a full payment to the pension system for a second straight year.
Without cost-of-living adjustments, the value of pensions gradually erode as inflation increases.
But freezing COLAs was part of a larger effort Christie and lawmakers launched in 2010 and 2011 to begin rescuing New Jersey’s pension system, which previous governors and legislatures had underfunded by billions for years. Christie’s administration projected suspending COLAs would save $70 billion alone and help prevent the pension system from becoming insolvent.
Under the law, retirees would receive increases again once the state’s individual plans that make up the pension fund are funded at 80%.
In 2016, the state Supreme Court upheld the freeze in the face of a lawsuit from retired government workers.
As of now, none of the state’s individual pension funds are close to 80%. Appearing at a state Senate budget hearing this past week, state Treasurer Elizabeth Maher Muoio told lawmakers it could about a decade for local government workers and two decades for state government workers before the yearly cost-of-living adjustments return to their pension checks under the current law.
That didn’t sit well with Sen. Samuel Thompson, R- Middlesex, a co-sponsor of the bill to restore COLAs.
“Thirty years from the time they retired, they’ll still not get a COLA?” Thompson asked. “By God, 30 years of inflation. Now, we need to work something better out to this. I mean, that just doesn’t fly.”
State Sen. Richard Codey, D- Essex, another sponsor, said reviving COLAs is “the right thing” to help retirees who aren’t “living high on the hog.”
Workers and union leaders have said the suspension is especially troublesome for older retirees, who didn’t make as much in salary and rely on the adjustments.
Still, the nonpartisan state Office of Legislative Services estimates this bill would add $110.8 billion to the pension system’s unfunded liability, which is still at $91 billion as of mid-2020, according to the most recent report from the state Treasury Department.
State and local government employers would shell out about $3.7 billion per year to pay for the unfunded liability over a 30-year period, according to OLS.
Muoio warned lawmakers about the cost at the hearing this week.
Christie said the move would put the state’s pension fund in a “perilous position.”
“If the future administrations continue to do what we did in terms of funding the pension and what the Murphy administration has done in terms of funding the pension, they’ll get the COLA back,” the former governor said of retirees. “But they’ll get it back at a time when the fund can afford to pay it.”
State Sen. Declan O’Scanlon, R- Monmouth, agreed.
“Would I love to be able to give the COLA back? Absolutely,” O’Scanlon said. “But the people who will pay for it are the taxpayers of New Jersey. You’ve got to do the math.”
State Senate Minority Leader Steven Oroho, R- Sussex, said he believes sponsors have “good intentions” but may not have known the financial impact of the bill.
Even public-worker unions, many of whom once opposed freezing COLAs, are leery of restoring them now.
Rob Nixon, director of government relations for the state Policemen’s Benevolent Association, said these workers “should have never had their COLAs taken away.”
“But this bill is not the vehicle to do it,” Nixon added.
Steve Baker, a spokesman for the New Jersey Education Association, the state’s largest teachers union, called a decade without COLAs “one of the devastating consequences of the state’s failure, over many years, to uphold its end of the pension bargain by paying its fair share.”
But, Baker added, “we need to be extremely cautious about any abrupt changes that could threaten” the progress the state has made with the pension system.
In the current state budget, the state is making a full contribution to the pension system for the first time since 1997 — about $6.9 billion. There is a similar amount in Murphy’s proposed budget for the fiscal year that begins July 1.
Two Wall Street ratings agencies cited the pension payments as one reason for recently upgrading the state’s credit rating.
The bill to restore the COLAs would need to be passed by both houses of the state Legislature and signed by Murphy to become law. Whether it even gets posted for a vote is unclear.
State Senate President Nicholas Scutari, D- Union, will “give the proposal a thorough review and consideration,” spokesman Richard McGrath said.
Assembly Speaker Craig Coughlin, D- Middlesex, is “reviewing the legislation,” spokeswoman Cecilia Williams said.
“Any changes will need to ensure public worker pension funds can remain on a path toward greater health, for both the current and future retirees who depend on them and those who could assume financial liability for reinstated COLAs,” Williams added.
Murphy’s office declined to comment on the bill.
Turner, the main sponsor, said the cost of restoring COLAs is “a legitimate concern” and she doesn’t expect the proposal to pass in the end.
Instead, she said, one step the state could make is increasing the pension payment in the new budget even more.
“Since the governor is giving away so much money, he could show good faith by giving retirees at least some kind of consideration,” Turner said. “The sooner we bring it back to the 80%, the better off everybody will be.”
Sen. Jon Bramnick, R- Union, a longtime Christie ally who is now a co-sponsor of this bill, said the 2011 reforms were necessary, but police officers, firefighters, and other government workers “took it on the chin for a long period of time.”
“Reasonable increases only make some sense,” Bramnick said. “With the billons of dollars in available revenue, it’s time to give them a little more.”
State Assemblyman Gregory McGuckin, R- Ocean, another sponsor, said if the state can provide money to undocumented immigrants and other programs, “we should be taking care of employees.”
Assemblyman Ralph Caputo, D- Essex, another sponsor, said the measure at the very least “starts a conversation” about the dilemma.
“There’s a certain amount of loss of faith in being a public employee,” Caputo said. “That should not be the case.”
Sweeney said the state might be able to restore COLAs if it establishes a “hybrid” pension plan — something he was pushing before he lost re-election in November. Oroho, the Republican Senate leader, said he’s open to discussing that.
“Nobody wants to get those COLAs back more than I do,” Oroho said. “Let’s make sure the people who are currently receiving checks don’t have the risk of actually losing their check.”
Police1 readers respond
As the founder of the NJ PFRS COLA FORUM, representing 10,500+ NJ police and fire retirees, we respectfully disagree about the information being presented about the cost of COLA and where the money comes from to support it.
Senate Bill S260, which reinstates COLA for retirees, is in danger due to misinformation and the media’s inaccurate reporting.
Through my research, I have learned COLA is paid not through the pension system but through the Pension Adjustment Act, also known as the PAA, NJSA 43:3B-1 through 43:3B-10. The law goes back to the late 1950s. Legislators recognized the erosive power of inflation on pensions and sought to mitigate it by having employers pay COLA as part of their pension obligations.
Governor Christie gave the employers a holiday for the past 11 years, not the pension systems. Yet he cited Chapter 78’s suspension of COLA as making pension systems more solvent. That’s a baseless claim.
COLA, if reactivated, only provides 60% of the Consumer Price Index inflation rate as a COLA. Further, it’s always based on the original pension award amount and it doesn’t compound or extend to retirees with less than 25 months in retirement.
The $2 billion cost to fund COLA is patently false. The PAA currently pays around $600M to retirees for COLA prior to 2011. In 2022, approximately 60% of CPI is 3.54%. That means the cost of COLA for ALL retirees is $424.8M. This is on the high side, as you must have 24 months in retirement to collect a COLA. With that said it’s closer to $400M! The bottom line is COLA will be just at about $1 billion, which is just about what it cost prior to Chapter 78 being enacted.
Our oldest and longest retired members are suffering. All we’re asking is for the bills before the legislature be enacted and that the same amount of money we paid these folks as a COLA in 2012 be paid in 2022. It’s not any more complicated than that!
Founder of NJ PFRS COLA FORUM
Retired Detective Galloway Twp PD, NJ
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