The Employee Benefits Crisis
We All Have A Stake
Philip D. Murphy
Chairman, New Jersey Benefits Review Task Force
When the members
of Governor Codey’s Benefits Review
Task force accepted the May
The Benefits Review Task Force discussions were based on the belief that public employee benefits are more than simply a budget line item.
to serve, we were fully aware of the political and economic
that our recommendations would have on the short-and
long-term health of New Jersey.
We soon discovered
that public employee benefits are not simply a line item
in the budget. Benefits are an integral
tool of state and local governments to attract and retain
a high quality workforce. We were also made cognizant
of the increasing cost of providing these benefits; the
challenge that governments face in funding these benefits;
and the need to protect the interests of all citizens.
The Task Force
spent the last six months engaging in thoughtful debate,
listening and studying public employee pension
and health benefits. From a government perspective, our
debate was based on the belief that state and local government
have a moral obligation to their employees to make the
payments they promised and to act with fiscal integrity,
openness and honesty. From an employee perspective, the
pension benefit structure must be able to attract and
retain a high quality workforce. But that goal must be
with a benefit structure that is affordable.
of inaction for the state as a whole—from
the governor’s office to the mayor’s office—are
simply too grave to ignore: lower bond ratings leading
to higher borrowing costs; essential services foregone
so that an unchecked future obligation may be paid;
or far more burdening tax policies.
at the conclusion that some sacrifices on the part of
all stakeholders are reasonable as a way
up the finances of the system, ensuring that benefits
continue to be available over the longer term. Our
provides recommendations in the following five key
areas: meeting government obligations; stopping the
the system; reforming the pension benefits structure;
the health care benefits structure; and strengthening
the process for reviewing benefit enhancements.
Care Benefits Unlike pension changes, which are made
through legislative action, changes
in health care benefits are made through negotiations
government and its employees. Our recommendations
respect this process and are meant to encourage
significant change in the cost sharing and health care
offered. With this in mind, the Task Force has
- Active and retired employees contribute a greater amount
to their health care whether through co-pays, deductibles,
or other means.
- The state should provide a fixed contribution to health
care coverage and create greater options to ensure that
every employee has access to coverage and is protected
against a catastrophic incident.
- New Jersey should increase the use of generic drugs to
narrow the gap in the state’s proportionally higher
prescription drug costs.
Strengthen Process for Reviewing Benefit
Enhancements The governance and process
for approving benefit
enhancements is broken. The current
process is overly political
and does not offer sufficient independent
analysis of information.
To remedy this situation, the task
force has recommended:
- A more fortified, independent Pension and Health Benefits
Review Commission, which would serve as an impartial public
voice as it relates to any pending pension or health care
- Every benefit bill should identify a revenue source; certify
that its costs and revenues have been developed in accordance
with generally accepted actuarial principles; and estimate
the benefits and costs to impacted constituencies.
Government Obligations Government
at all levels must meet its current
to fund the
pension plans. They must also commit
to using financially sound
practices and be accountable to
taxpayers. The task
- State government use consistent and generally accepted
actuarial standards to determine pension fund asset values,
obligations and annual contributions.
- Through sound fiscal stewardship, government must resume
making full, annual pension payments.
- Immediately address the Defined Benefits Plans’ $12.1
Abuse of the System We must end the practices
of the system that
was designed to benefit
are overly political
and not nearly objective
The task force has
- • restrict end-of-career salary hikes,
- require employees to designate a single job for pension
- eliminate pensions for professional service contractors
and vendors, and
- limit sick day payouts at all levels of government.
Reform Public employee pension benefits are an integral
part of state and local efforts
to attract and retain a high quality workforce. The task force also
recognizes and supports the policy goal and
societal benefit of providing a secure retirement for
its citizens. However,
those goals must be consistent with a benefit
structure that is affordable to the state and fair to the
taxpayers who pay the pensions and the employees who contribute
to their pensions. The current structure of the benefit programs
cannot be sustained over the long term. The
task force identified two major ways to modify the benefit
The first is to raise the age at which one
can retire with full benefits from fifty-five to sixty.
is based on increasing life expectancies, longer
work durations, and a possible “brain drain” at the state
and local level due to the upcoming retirement of baby boomers.
The second change is that pension benefit payments
should be based on the average salary of the five highest years
(as opposed to the current three) or on the
average of the three highest years (for those individuals for whom
it is now based on the highest single year).
The Future These ideas should be the platform upon which a healthy,
energetic debate takes
a debate that
involves everyone – mayors, business
administrators, comptrollers, county executives,
cabinet level officials
and, of course, public employees. Everyone
has a stake in helping to solve this crisis.
predicament, if left unresolved, will be inherited by
our children. In the
process for changing
benefits has often failed to meet the highest
standards of fiscal integrity. Future changes
must be considered
under a process that is more transparent,
accountable and responsible or this unfortunate
in our fiscal
will simply repeat itself.
Article published in March 2006, New Jersey Municipalities