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N.J. municipalities group warns Christie's pension changes could trigger 'mass exodus' of workers

By Samantha Marcus | NJ Advance Media for NJ.com
on March 02, 2015 at 6:54 PM, updated March 03, 2015 at 9:10 AM

Stopping short of staking out a position on Gov. Chris Christie's proposed pension reforms, the New Jersey State League of Municipalities is saying the changes could disenfranchise workers and trigger a mass exodus of local workers.

Executive Director Bill Dressel shared the league's concerns in a letter to the governor late last week, saying it had concerns about some of the recommendations and wants a seat at the table.

"There are questions being raised by municipal officials both in a capacity as an employer, because we're the ones responsible for paying the bills, and from the workforce perspective," Dressel said today.

A special commission appointed by Christie released a long-awaited report last week recommending drastic changes to the state's pension and heath plans, including freezing the existing pension system and moving active employees onto a hybrid of a traditional defined-benefit pension plan and a 401(k)-like defined-contribution plan.

Dressel said his group has not taken a formal position on the proposal and changes are necessary, but noted that "these are major white knuckle issues that have got to be discussed."

Employees' health care coverage would also be reduced and they would have to pay more out of pocket toward their health care. In exchange, the state would constitutionally protect pension payments after decades of shortchanging them.

"The proposal to freeze existing pensions, without qualification, could inspire the mass exodus of key local administrators and professionals, giving them no time to train and mentor their successors," Dressel said. "This loss of experience and expertise would have a deleterious impact on the efficiency and effectiveness of local programs and services."

There was evidence of that as the state overhauled the pension system in 2011, forcing employees to contribute more for their pension and health benefits, raising the retirement age and suspending cost-of-living increases.

More than 20,100 public employees retired during the build up to those changes in 2010, a 59 percent increase over the year before. The next year, another 19,500 retired. Retirements began picking up again last year as Christie made renewed calls for reform.

Commission Chairman Tom Healey noted that the report mentioned possibilities for smoothing the transition for those mid-career employees, who may receive lower benefits under the proposed "cash balance" pension plan.

An Urban Institute study of a similar plan created last year in Kentucky found that employees with fewer years of service would receive higher benefits than under their traditional defined-benefit plan, and employees with "many years of service would receive less."

"What is quite clear is that younger workers, especially under the agreement reached in 2011, get very little. No one would join the state today for the pension plan, so a new pension plan will be much better from that point of view," Healey said.

Also under the commission's plan, unions that are willing and able could take over management of their pension funds.

Dressel said that recommendation overlooks the many members of the Public Employee Retirement System who are not represented by unions, and that "this 'reform' would deny them any say on their retirement benefits."

Christie's commission noted in its report that aspects of the plan would likely be unpopular, but that its members "believe in time they will be viewed as the best way to move forward."

The commission stressed that with $83 billion in unfunded pension liabilities, $53 billion in unfunded health care liabilities and soaring annual pension payments, New Jersey can little afford to drag its feet on making these changes.

"The need for urgency in adopting a solution cannot be overstressed. The already narrow window for a reasonable solution is closing fast," they wrote.

Dressel told the governor that while his organization was left out of the commission's work developing those proposals, he hoped it would be involved in implementing them.

The pension commission has suggested it hand the baton to an implementation committee, and Dressel said his group wants a seat at that table.

"We think that first and foremost, as they proceed with putting more meat on the bones of these proposals, developing their final plan, that it's important that we have a representative of municipal government," he added.

Healey said he intends to meet with the league.

 

 

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