February 5, 2009
New Jersey League of Municipalities Supports Pension Payment Deferral Amendment and Urges Passage of Amended Bill
Thanks to the efforts of League President, Mayor Tim McDonough of Hope, and Woodbridge Mayor and Former State Treasurer John McCormac, acting as Special League Advisor on State-Municipal Fiscal Issues, the Corzine Administration has agreed to support a proposal to amend S-7/A-3688, the Pension Payment Deferral legislation. That amendment is designed to address a major municipal concern with the original bill.
We enthusiastically support the amendment, which may be added to the bill in the Assembly later today.
Since Governor Corzine announced the pension payment deferral idea at our November Conference, we have been involved in discussions with the Administration and with legislative leaders. Throughout those discussions, we have insisted that municipalities be given the right to opt out of any deferral, should they judge that to be in the best interests of their property taxpayers. Each municipality will need to be able to balance the need for immediate relief, in the current economic climate, with any potential long term costs. We maintain that such a decision can only be made by municipal officials, in light of local conditions. We, further, articulated the need for meaningful protection against excessive ‘phase in’ interest payments for the taxpayers in those municipalities that choose to appropriate funds to cover their full, annual liability.
The original bill draft would have barred municipalities from paying their full obligation and would have redirected 50% of the payment to a separate account, which could have taken various forms. The annual increase in pension bills, because of this additional unfunded liability, would, however, have accrued interest at a rate greater than what could likely have been earned on any of the separate accounts. Accordingly, the ‘option’ could have created a shortfall that would have been made up by our property tax payers.
This new amendment instructs the State’s pension actuaries to allow the full contribution by any municipality that wishes to make it. The normal contribution and regular amortized unfunded accrued liability (absent the deferral) would continue to be billed annually to all municipalities, but the new unfunded accrued liability due strictly to the deferral would be billed only to the entities that chose to defer their contribution to begin with.
As a result, only those entities which chose to defer their pension payment would be charged annually with the resulting principal and interest charges and the shortfall due to the deferral would not be paid by everyone. As a result of this, there is no longer any need for newly created accounts.
We thank the Governor, the Treasurer, the Director of the Division of Pensions and the Senate and Assembly sponsors for addressing our concerns and for advancing this initiative in these most difficult times.
We will fully support amendment, and subsequent passage, of S-7 and A-3688, the Pension Payment Deferral Option initiative.
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For further information contact: William G. Dressel, Jr., Executive Director at (609)695-3481, extension 122 or 609-915-9072.