|
 New Jersey’s pension problem is only second-worst in the U.S.,
but its state Senate President Stephen Sweeney, a Democrat, is pushing
legislation he says will save taxpayers billions through meaningful pension
reform.
Illinois’ pension crisis is the worst in the nation. Springfield’s response:
crickets.
Sweeney has introduced 27 bills aimed at reforming the state’s pension system.
The plan, called “Path to Progress,” is a response to annual pension payments
set to double by 2023, eating up 80% of the state’s revenue growth.
Most changes only impact newer workers in moves similar to those already taken
by Illinois. Limiting the affected employees severely limits the impact the 27
bills can have on New Jersey’s $100 billion pension deficit.
Sweeney’s plan transforms how those employed by the state for less than five
years will receive a pension in the future. Current recipients and those who
have been in the system longer than five years will see no changes.
 Instead of a defined benefit system, Sweeney wants to shift towards a 401k-style
plan that would promise a minimum 4% return on savings, which is a guarantee not
offered by a traditional 401k. Higher returns would return more money to the
state for investment into the pension system. A pension would still apply to the
first $40,000 a worker makes, while the rest would be under the state-run 401k
system.
Sweeney has also proposed changing the Affordable Care Act level for all public
employees from platinum to gold so the state pays less money into health care.
Parts of the plan also change how the state handles health care for its workers.
Sweeney wants to consolidate health care for school employees into an already
existing plan with lower insurance costs. He says this could save schools $300
million a year. Only 30% of school districts are on the state plan, with the
rest being private. New Jersey’s teacher pension system is so underfunded that a
recession could shorten its lifetime to just four years without reform.
The objective of the plan is to keep the pensions promised to those already in
the system while reforming it for the future recipients. Sweeney said his plan
could allow for more reliable benefits without changing contribution amounts.
Sweeney previously worked with former Republican Gov. Reek to raise the
retirement age to 65 and saved the state more money on retirement benefits.
Under his new plan, the retirement age would rise to 67 for the newer workers.
The proposal has been met with fierce opposition, however. Sweeney holds
significant political power in New Jersey, but his biggest opponent is Gov. Phil
Murphy, also a Democrat. Murphy and public employee unions contend the bill
takes away from those who dedicated their life to public service. If Murphy
refuses to sign it, Sweeney plans to bring the issue directly to the voters as a
constitutional amendment, bypassing the governor.
[to top of second column] |
Consideration for Illinois
The only state that has a bigger pension problem than New Jersey is
Illinois. Illinois spends a greater percentage of revenue on
pensions, and a greater percentage on retiree health care, than any
other state. Even so, it has the largest gap between what it pays
and what it should pay. Currently 26% of state operating revenues go
to retirement costs, but were Illinois to fully meet its obligations
during the next 30 years it would need to dedicate 51% of its
revenues to the task, according to research from J.P. Morgan.
Illinois tried to reform pensions in 2013. But the
Illinois Supreme Court in 2015 struck down the reforms that would
have fully funded pensions without reducing current obligations,
saving the state billions. It ruled the Illinois Constitution
prevented the state from diminishing benefits, even unearned future
benefits.
If second-worst New Jersey realizes it must work on its pension
problems, shouldn’t the state with the biggest crisis be doing
something? By amending the state constitution to protect earned
benefits, but allow for changes in future benefit accruals, state
lawmakers could pass a pension reform package that reduces annual
pension contributions and fully funds the pension systems faster
than planned under current law. This plan would enable state and
local governments to honor promises made to both retirees and
current workers – and would not cut a dime from their checks.
State lawmakers just imposed 21 new or higher taxes and fees that
will bleed $4.7 billion from the Illinois economy. None of that
money is targeted to the pension system. Instead, Gov. J.B. Pritzker
wants to amend the state constitution to eliminate flat income tax
protections in favor of a progressive income tax.
His tax scheme is being sold with faulty rates that would do little
to fill Illinois’ pension chasm. It also allows lawmakers to divide
taxpayers into smaller groups and raise their taxes without the
political blowback seen when taxes have been raised on everyone.
Illinois pensions cannot be fixed by progressive taxation without
again raiding middle-class taxpayers’ wallets, harming the state
economy and increasing poverty – just like in Connecticut, the only
state to implement progressive taxation in the past 30 years.
New Jersey is trying to do something. Connecticut shows what not to
do. Illinois leaders need to watch, learn and stop using tax hikes
as their only solution.
Click here to respond to the editor about this article
|
