N.J. grapples with soaring pension-fund deficits

TRENTON - The long-term deficit for New Jersey's public-employee pension funds grew by $11.4 billion, or 33 percent, in fiscal 2009, according to actuarial reports released yesterday.

The fund - meant to pay promised benefits to secretaries, clerks, police, firefighters, educators, and other public workers - was $45.8 billion in the red as of June 30, compared with a $34.4 billion shortfall a year earlier.

In all, the funds had only two-thirds of the amount needed to pay promised benefits as of the date of the review - and the picture is sure to get worse.

The summary does not reflect much of the investment loss suffered during the recession, and does not factor in the state's zero contribution to the pension system in the current fiscal year despite a $2.5 billion recommended payment.

As the deficit grows, the recommended annual payments to close the shortfall also increase, potentially requiring tax hikes or consuming money that could be used on other programs. If the payments are ignored, benefits promised to public employees could be put in jeopardy.

The grim set of reports, issued by independent actuaries, comes as a series of pension and benefit changes is moving through the Legislature. The Senate approved the changes Monday, and the Assembly introduced a similar package yesterday.

Gov. Christie, citing the shortfall, said he supported the measures on the table, but saw them as a starting point. He said he expected other pension cuts in the near future.

"The pension system is too rich, and we need reform in this pension system because it is moving in the wrong direction," Christie said.

Officials representing police, firefighters, and state workers said the problem was not their benefits, but the state's failure over more than a decade to pay what it owes into New Jersey's pension funds.

Since 2004, state and local governments have deferred $11.4 billion, or 64 percent, of the money they owed the pension system, according to bond statements.

The state alone skipped $3.1 billion of payments from 1998 through 2003, according to budget documents.

Failing to invest that money in the pension fund - and using it on other items or to avoid tax increases - meant the state earned smaller returns during some boom times, furthering problems in the system.

The pattern has continued. Gov. Jon S. Corzine put roughly $100 million into the system in fiscal year 2009, according to actuaries, compared with the $2.3 billion the state owed. This year he proposed another relatively minor contribution of $100 million, and Christie eliminated that amount as part of his midyear budget fix.

Unions have pointed to those moves as the biggest contributors to the growing shortfall.

"That's like me telling my mortgage company, 'This month it's zero, next month maybe I'll get back to you,' " said Wayne Hall, a Tenafly detective and trustee on the board of the Police and Firemen's Retirement System. "Where the hell is the fiscal responsibility from the government?"

The board's chairman, John Sierchio, said employees have continued to pay a portion of their salaries into the retirement system.

Sierchio, a Bloomfield detective, said that "if they paid their fair share, we wouldn't be in this situation."

Christie was noncommittal when asked if he would in the next budget build up the state's pension contributions, which by actuarial standards should be around $3 billion, or roughly 10 percent of state spending.

"If I get the type of pension and benefit reforms that we need, then we can consider what else we can do on the state side in terms of funding," he said.

The governor added that even if the state had paid its full contributions for the last decade, the teachers' retirement plan - now 36 percent underfunded - still would have a shortfall of 26 percent.

"How do unions explain that?" Christie asked, and then answered: Benefits "outstrip our ability to keep up with them."

"The real argument here should be, are the people of New Jersey willing to continue to fund out-of-control, out-of-marketplace pension and health-care benefits for public employees?" Christie said.

He said the pension reforms on the table, first proposed in 2006, are "just the beginning." He said he expected additional ideas after these are approved.

The current plans would roll back a 9 percent pension increase approved in 2001, require all state workers to pay 1.5 percent of their salaries for health benefits, and cap payouts for unused sick time at $15,000.

Because most of the changes would apply to new hires, much of the fiscal impact might not be felt for decades. Unions used that point to argue against changes, saying they won't help the system now. Lawmakers said the changes are a long-term fix for a long-term problem.

The Assembly introduced its version of the pension changes yesterday. Lawmakers there also plan to introduce bills that would target pension benefits at state authorities and bar anyone from collecting a public pension while receiving a public salary.

While the Senate approved its bills in two weeks, Assembly leaders have signaled that they intend to take a more deliberate pace. They are unlikely to approve the measures before Christie's March 16 budget speech, leaving in question what savings will be available when he lays out his first spending plan.