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June 26, 2014

RE:     State Pension Payment/Budget Update – Two Court Cases
I.  State Pension Payments
II. COLAs for Retirees

Dear Mayor:

I.  State Pension Payments

Yesterday in Trenton, Superior Court Judge Mary Jacobson refused to issue the preliminary injunction requested by the public employee unions in the Burgos, et al. v. State of New Jersey. This case deals with the Administration’s decision to underfund its public employee pension obligations. (See our May 22 letter at http://www.njslom.org/letters/2014-0522-Budget.html, which discusses the Administration’s decision to reduce State FY 2014 pension payments by $887 million. That letter also outlines the Treasurer’s budget presentation, proposing a $1.57 billion reduction in FY 2015 State pension payments.) The Administration has advanced these reductions to close the State’s widening budget gaps, which are caused by the dramatic shortfall in current year revenues.

Several public employee unions had challenged these actions, arguing that they violated statutory provisions (in Chapter 1 of the Public Laws on 2010, which established a 7 year phase-in of full funding of State pension unfunded liabilities, and Chapter 78 of the Public Laws of 2011, which established contractual rights to public employee pensions) and impaired the contractual rights of the employees. The unions, firstly, sought an injunction that would require the State to make the full actuarially required pension payments in the current Fiscal Year (which ends on Monday, June 30). The unions, secondly, asked the Court to rule on the Administration’s proposal to reduce FY 2015 pension payments.

Judge Jacobson, citing the need to balance the budget and the State’s current year (FY 2014) revenue gap, denied the request for immediate injunctive relief. The Judge also ruled that, since the FY 2015 budget has not yet been adopted, the Court could not rule on the unions’ second claim. At the same time, the Judge accepted the unions’ assertion of the State’s contractual obligations. Accordingly, pending final action on the State’s FY 2015 Appropriations Act, the Judge left open the possibility that an amended action could be brought.

As a result, actions taken by the Governor in June to re-balance the FY 2014 budget stand. We will keep you posted on further developments.

II. COLAs for Retirees

Citing a Legislative history dating back to 1958, the Appellate Division  ruled today, in the case of Berg, et al. v. Christie, that New Jersey retired public workers have a contractual right to cost-of-living adjustments (COLAs) to their pension benefits, and those increases are part of the State administered pension systems’ benefits packages.

The Appellate Division panel’s decision DID NOT, however, order a lifting of the COLA freeze, instituted by Chapter 78 of the Laws of 2011. Today’s decision, instead, remands the case to the Trial Division.

We will carefully monitor this case, as the ultimate outcome could increase municipal pension liabilities.

Very truly yours,

William G. Dressel, Jr.
Executive Director

 

 

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