Gov. Christie is calling for public employees to work longer, contribute more to their pensions, and pay more for health care, as part of a plan to rein in the state's costs.

The governor announced his proposal Tuesday at the Gloucester Township Senior Center to a largely receptive crowd of close to 200. He argued that pensions and benefits reform is "the most critical issue" facing the country for the 21st century.

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The gap between the predicted liabilities for New Jersey's public employee pension funds and current assets is an estimated $46 billion, a figure many experts believe falls far short of describing the state's true liabilities. Postretirement medical benefits, which are paid on a pay-as-you-go basis in New Jersey, are short $67 billion.

"I know these reforms will not be popular with everyone," Christie said. "I also know that failure to follow through with dramatic pension reform will imperil the system for everyone, and that failure to control and share costs of health-care benefits will continue to eat away at our state and local budgets. We must reverse the damage caused by fairy-tale promises that have fattened benefits and pensions to unsustainable levels while ballooning unfunded liabilities to breathtaking levels."

Under the governor's proposal, the state would roll back a 9 percent increase in pension benefits granted to employees in 2001. The cut would apply to all future service.

Employees would be required to contribute 8.5 percent of their salaries toward pension benefits. Currently, employees pay from 3 percent to 8.5 percent, depending on which pension system they are in.

The retirement age for most state workers and teachers would be 65, up from the current 62, and early retirement would require 30 years of service, up from the current 25. Employee pensions would be calculated based on the five highest years of salary instead of the current three.

Under the proposal, cost-of-living adjustments for retirees' pensions would be eliminated. Christie is also calling for the state to assume investment returns of 7.5 percent instead of 8.25 percent.

On health care, Christie proposed that public workers should pay 30 percent of costs, up from 8 percent. The increase would be phased in over four years. Employees would pay a percentage of their premium instead of a percentage of their salary.

The administration estimates that without any changes, the $46 billion unfunded liability would grow to $181 billion by 2041, but that if the governor's proposals are enacted as proposed, it shrinks to $23 billion.

Christie argued that even if the state paid its full share into the pension funds - which it has not done in over a decade - changes would still be needed to cut costs.

Democratic lawmakers and unions responded within minutes of the governor's announcement by saying the state needed to make its share of payments into the pension fund before further talk of reform.

State and local governments have skipped more than $14 billion in "required" payments into the pension funds since 2004. Christie's first budget skipped the entire $3.1 billion payment the state was supposed to make this year.

Experts say the state's habit of skipping payments under both Republican and Democratic governors, along with the drop in the stock market, are the key reasons the state is facing such a large shortfall in the pension system.

Senate President Stephen M. Sweeney (D., Gloucester) agreed changes were needed, but called on Christie to follow a law, sponsored by Sweeney and signed into law by Christie in March, that requires the state to start paying into the pension system next year, phasing in payments over seven years.

"I am more than ready to sit with the governor and discuss needed reforms, but they will not move in the Senate until a check is cut, deposited, and cleared," Sweeney said. "We can't expect public workers to pay more and not hold up our end of the deal any longer. . . . It doesn't matter what else is proposed. Unless we pay into the system, it will remain broken."

Christie said Tuesday that, while he intends to comply with the law, whether or not the state pays the $512 million that would be required next year will depend on the realities of the budget at the time.

Barbara Keshishian, president of the New Jersey Education Association, which has been a favorite target of Christie's, said his proposals would hurt hundreds of thousands of working families.

"It's impossible to take seriously the governor's claims that he is trying to reform pensions while perpetuating the greatest abuse of all – the absolute failure of the state to do its part, even as public employees have paid their share of pension costs out of every paycheck," Keshishian said. "Enough is enough. Gov. Christie needs to stop pointing fingers and start funding the pension systems. No other so-called reforms can dig the state out of the hole that he and many of his predecessors have dug."

Edward Thomson, an actuary who has served as a trustee in the state pension system for 17 years, said that while the changes Christie proposed will help in the long run, what the pension system needs now is for the state to put enough money into the pension system to cover its net cash flow, which was negative $3.18 billion last year.

"It's all about writing the check," Thomson said. "The reforms aren't going to change what you owe already. Will it save money in the future? Sure. Is it going to fix the problem that exists today? No.

"You have to put in money to cover the expense of the fund, period, end of story, no revelation that can come," Thomson added. "There's no magic pill."

Several members of the audience thanked Christie for facing up to the pension and health-care problems.

The governor acknowledged, however, that he has a tough fight ahead of him.

"None of these things that I'm proposing is going to be a picnic to get through the Legislature," Christie said.

Christie's Plans at a Glance

Roll back a 9 percent increase for pension benefits for all future service.

Establish the retirement age at 65 and increase the number of years of service required for early retirement from 25 to 30 years.

All employees would contribute 8.5 percent into the pension system. Currently employees pay anywhere from 3 percent to 8.5 percent.

Eliminate cost of living increases for pensions.

Employees would pay 30 percent of health-care costs instead of 8 percent, to be phased in over a period of years.

SOURCE: N.J. Governor's OfficeEndText

Contact staff writer Adrienne Lu at 609-989-8990 or alu@phillynews.com.