Gov. Jim Florio began the modern era of shortchanging the pension funds in 1992 with the Pension Revaluation Act, which allowed the state to switch from using the book value of pension assets, a more conservative approach, to a market-related value, and increased the assumed rate of return for investments from 7 percent to 8.75 percent.
Under the act, changes in pension asset market values are phased in over five years, which means the losses during the most recent recession have not yet been fully accounted for in the $46 billion unfunded liability figure.
The Florio maneuver made pension funds appear to go from about 100 percent funded to 125 percent funded overnight and allowed the state to reduce contributions to the pension funds by more than $1.5 billion in 1992 and 1993.
After Florio, Gov. Christie Whitman, seeking to keep her campaign promise to cut taxes while still balancing the budget, enacted the Pension Reform Act of 1994. Under the act, the state stopped prefunding post-retirement medical benefits and started drawing down accumulated assets to pay current health-care costs of retirees, extended the amortization period used to calculate the state's annual required payment into the pension system, reset the amortization period for paying the state's pension liabilities every year to a new 34-year-period (which means that even if the state contributes the full annual required payment to the pension plans, the unfunded liability might never be paid off), and changed the way the pension liability was assessed, according to the Office of Legislative Services. Together, the changes allowed state and local governments to reduce contributions to the system by nearly $1.5 billion in 1994 and 1995.
In 1997, under Whitman's Pension Security Plan, the state issued $2.75 billion in bonds through the state Economic Development Authority to pay for pension obligations, instead of appropriating funds from the annual operating budget. By having the EDA issue the bonds, the state got around the constitutional requirement of voter approval to issue new debt.
A handful of state lawmakers objected, arguing that the state was taking a risk, and they proved right. The market initially grew, allowing the state to skip payments to the pension funds, but later tanked, leaving taxpayers on the hook for bond payments that started off at about $90 million and increased to about $550 million annually.
In 2001, Gov. Donald DiFrancesco effectively increased pension benefits for current and retired public workers by 9.12 percent. The increase was retroactive, which meant that even retirees already receiving pensions saw their pension checks increase.
To pay for the increase, lawmakers again revalued the pension assets to reflect their full market value. This time, they added a new twist, using the earlier date of June 30, 1999, even though by 2001, the assets had already lost $2.4 billion in the market. The state carved out "Benefit Enhancement Funds" from the newly inflated market values to pay for the new benefits.
From 1997 to 2003, the state made little or no contributions to the state's pension plans because they were considered fully or overfunded.
Under Gov. Jim McGreevey, the state starting shifting money from the Benefit Enhancement Funds back to the main pension funds in place of new state contributions to the pension system. The state was contributing no new money, however, instead shifting money from one subaccount to another.
In 2003, the state announced a five-year plan - which was later quietly abandoned - to phase in payments into the pension plans, beginning with 20 percent of the required statutory contribution in fiscal 2004, increasing over five years to full funding in fiscal year 2008.
According to a Securities and Exchange Commission report, the state used more than $704.2 million from the Benefit Enhancement Funds to pay the state's pension obligations from fiscal 2004 to 2006.
Gov. Jon S. Corzine put about $2.2 billion into the pension system in his first two years in office, significantly more than his predecessors, but still only about half of what the state was supposed to be paying in. Facing difficult budgets in his last two years, however, Corzine put in only token contributions. - Adrienne Lu