New Jersey Commission Urges Action On Public Benefits

A bipartisan commission tasked with evaluating New Jersey's public benefits has recommended significant changes to public-worker health coverage and retirement plans, urging lawmakers to take immediate action to rein in the state's ballooning costs.

The eight-member New Jersey Pension and Health Benefit Study Commission warned in its final report, released Wednesday, that benefit spending is on track to reach an estimated $10.7 billion by 2023, more than a quarter of the state budget.

Commission members wrote that the state should scale back its health coverage and move public employees to a hybrid pension plan to keep its benefit costs at about 15% of the annual budget.

New Jersey Gov. Chris Christie, a Republican who formed the commission in August 2014, said he agreed with its recommendations, but the job of implementing them rests on his successor, Democrat Phil Murphy.

"I hope a Democratic administration, a Democratic legislature, can speak truth to these unions and help them understand that there's nowhere else to go," Mr. Christie, who was limited to two terms and will leave office next month, said at a press conference Wednesday.

Mr. Murphy courted public unions while on the campaign trail, particularly the New Jersey Education Association. He wasn't immediately available for comment.

Commission member Tom Byrne, an asset manager and former chairman of the Democratic State Committee in New Jersey, said the incoming administration and lawmakers should act as quickly as possible to stem the state's growing unfunded public pension liability.

"This was a math problem, and we all agreed that there weren't really any other viable options," Mr. Byrne said. "The personalities in Trenton are going to change, but the math is not changing."

The commission's report pegged the state's unfunded public pension liability at about $90 billion under Governmental Accounting Standards Board principles. The New Jersey Treasury Department, which calculates the liability differently, said it was $36.5 billion as of last September.

In 2011, Mr. Christie worked with the Democratic-controlled legislature to enact far-reaching changes to the state pension system, including raising public-worker contributions, freezing cost-of-living increases and raising the retirement age to 65. Public employee unions opposed the overhaul and were infuriated when Mr. Christie reneged on his promise to increase the state's pension payments.

The changes, coupled with a recent decision to dedicate state lottery proceeds to the pension system, improved the state's funding ratio, but a sizable unfunded liability remains.

Mr. Christie contributed more to the state retirement system than any previous governor, but the $2.5 billion put in this year was below the roughly $4 billion payment he had agreed to make while negotiating the overhaul.

A spokesman for the teachers union, which represents more than 200,000 current and retired teachers and educators, said the governor failed to fix the state's pension system.

"We look forward to working with Governor-elect Murphy to ensure that the state achieves responsible and sustainable pension funding going forward," the spokesman, Steve Baker, said in an email.

With the state's budget already squeezed, savings from scaled-back public health benefits are the only viable avenue for significantly increasing funding for the state's pension system, according to the commission's report. Members recommended aligning health benefits for public employees with the Affordable Care Act's gold level coverage and limiting health benefits for workers who retire early.

To fix the pension system, commission members recommended switching public employees to cash-balance plans similar to those offered by private companies. Workers would contribute to 401K-style plans, which would be collectively managed by a professional investment firm.

A minimal guarantee -- possibly 3 or 4% -- would ensure some kind of return for employees in the event of poor investment returns, said commission member Thomas Healey, a Republican.

Write to Kate King at Kate.King@wsj.com

(END) Dow Jones Newswires

December 06, 2017 15:50 ET (20:50 GMT)