Next month the state legislature wades back into the quagmire of state public worker pensions. The existing plan has been chronically underfunded and is now some $40 billion in debt. Gov. Chris Christie has proposed a radical reform, under which traditional pension plans would morph into a hybrid retirement system. It’s essentially a “pensions plus” deal that would allow workers to put aside money for their retirements, much like a 401(k). NJ Spotlight Budget and Public Finance writer John Reitmeyer joined NJTV News Anchor Mary Alice Williams to break it all down.
This alternative 401k style plan already exists as an option for state employees. What makes Christie’s proposal new is that it has features consistent with a 401(k) plan while retaining some features of a traditional pension plan. “It’s not quite the same as what the state already offers, either on the pension side or on the tax deferred side,” Reitmeyer said. “It would be taking some from one plan, some from the other plan, and offering a brand new plan.”
The 457, or tax deferred savings plan, that Gov. Christie wants state workers to move towards is very similar to a private sector 401(k) in that there’s an individual account for the employee. “The employee puts money in [from] each paycheck each month, and then that money can grow, hopefully, with wise investment,” he explained. “But just like a 401(k), the employee has a little more say, whereas on the pension plan right now all those investment decisions are made by the pension board.”
Christie has argued that state workers’ benefits exceed those of the private sector. Reitmeyer said, “the analysis that the special commission that the governor impaneled to look at the issue did a lot of work and a lot of holding up of what’s offered in the private sector and what’s now offered to government workers. It’s true that in a lot of cases big companies in the private sector have moved from the traditional pension to more of a 401(k) style plan.”
But the question remains of who has the better end of the deal for the new 401(k) style plan. Does it offer any benefits to public workers, or are its benefits only to the budget? Reitmeyer says you can look at it both ways. “Certainly there are benefits to the state budget, because the whole idea is to push down cost. The pension plan is a defined benefit plan, which basically means the state has to make it’s promise to the employees at the end of the day, no matter what. The hybrid plan would still be a defined benefit plan in that it would offer a floor of interest that the investments would earn, but it’s a little bit cheaper for the state because they know, in a general way, how much they’re putting in. It’s not as much as they’re going to have to pay when someone’s retiring under the current pension plan,” he said. “On the employee side, depending on how optimistic you are about the future of the pension plan, this gives you a little bit more say on the investment decisions and it could have a better, long term outlook.”
Under the plan that was put forward by the commission and endorsed by the governor the state would still oversee the program. Democrats and public worker unions have been resistant to the proposal, fighting in court to enforce the 2011 agreement Christie made to fully fund pensions. Reitmeyer says the disagreement stands where it was in June when the Supreme Court made it’s decision. “You have Democrats on one side reacting to the court decision that said the state didn’t have to fully fund those commitments that were made in that 2011 law,” he said. “And then you have the Republicans who have said we need to look at those changes that were put forth in February by the special commission and endorsed by the governor. So far nobody’s blinked, and it hasn’t been a front burner issue over the summer. Headed into the fall the Assembly is running for reelection and obviously the governor also has his eyes on another office right now.”
When asked if the issue will be brought up in November, he said we’ll have to wait and see. “Time is of the essence, but we’ve gone down this road before in Trenton. That even though we have this gross underfunding problem, we don’t address it, so we’ll see,” he said.