In response to the New Jersey legislature’s June pension reforms, New Jersey’s unions have sued the state. The move is not unexpected. Similar actions were taken by unions in Minnesota, Colorado and North Dakota over proposed COLA reductions.
Unfortunately, New Jersey’s pension system is in seriously bad shape and slated to run out of assets to pay out pension promises by the end of the decade. The reasons for this have been discussed many times before. First, is the fundamental misvaluation of pension liabilities, the systematic under-contribution that flows from that and policy choices such as pension holidays, skipped payments and benefit enhancements. To fund pensions according to Joshua Rauh, New Jersey would require the largest per household increase in contributions at $2,475 per household, per year.
In a new paper to be posted soon, my co-author Roman Hardgrave and I take a deeper look at New Jersey’s public employee benefit bill on a local basis. When fully accounting for pension promises, OPEB and other benefits the cost of compensation on the local level is far greater than is recognized.
In the case of Colorado and Minnesota the unions’ suit was thrown out on the grounds that there is no specific right to the COLA. How will the NJ court decide on formula changes and the COLA freeze? Interestingly, a N.J. Superior Court judge has also filed a lawsuit against the state. He says the new law should not apply to judges since the N.J. Constitution says judges’ pay, “shall not be diminished during their term of appointment.”