TRENTON, N.J. (CN) – A New Jersey union and its members have filed suit against the state’s governor and Legislature, challenging the constitutionality of a bill that would increase employee pension contributions by 1 percent. Gov. Chris Christie is expected to sign the bill into law on Monday after the state Assembly approved the bill Thursday night.
The plaintiffs, who say they have already had their pensions shorted by New Jersey for seven years, claim in the 20-page federal complaint that the proposed bill “unlawfully shifts” to them “the cumulative costs of the State’s chronic failure to fund required contributions to these funds in accordance with the law.”
Lead plaintiff Communications Workers of America Local 1033 says it is looking out for the interests of workers 7,000 who belong to the Public Employees’ Retirement System (PERS) and the Teachers’ Pension and Annuity Fund (TPAF).
“Beginning at least as early as 2004, the defendants have failed to pay into the plans the amounts so determined, diverting the funds in whole or in part to unrelated purposes,” according to the complaint.
“Over the period Fiscal Year 2004 through Fiscal Year 2011, the defendants failed to fund Annual Required Contributions to PERS by more than $2.3 billion; and they failed to make Annual Required Contributions to TPAF totaling more than $7.4 billion,” the Communications Workers union claims. “Using the State’s actuarial assumptions about expected investment returns, these funding choices by defendants also forfeited approximately $2.9 billion in investment income.”
Meanwhile PERS’ unfunded accrued liability grew from $3.8 billion in 2004 to an estimated $12.7 billion in 2011, while TPAF’s liabilities grew from $8.8 billion in 2004 to an estimated $31.2 billion in 2011, according to the complaint
“The growth of unfunded accrued liability for TPAF and PERS combined total approximately $31 billion for this period,” the union claims.
Moody’s Investors Service has said the state’s unfunded pension liability makes it the “seventh-worst funded system in the country.”
In an effort to rectify the vast lapse in contributions, the Legislature last year adopted the “Seven-Year Deferral” plan, which, as its name suggests, put a seven-year freeze on the state’s obligation to fully fund its Annual Required Contributions to PERS and TPAF.”
“The new law provides that the State will be considered in compliance with [Annual Required Contribution] requirements if in Fiscal Year 2012 it makes 1/7th of the Annual Required Contribution for that year and in each subsequent fiscal year it increases its contribution by an addition 1/7th of the Annual Required Contribution for the year in question, until the seventh fiscal year, in which the State is purportedly required to resume making full Annual Required Contributions.”
“As a result of the Seven Year Deferral, the combined deficit in TPAF and PERS will increase from approximately $44 billion in 2011 to $72 billion in 2018,” according to the complaint.
The plaintiffs also claim that the deferral “reduces the likelihood that the State will ever meet its obligations” and compromises “the level of benefits which members are guaranteed to receive upon retirement.”
Legislators have continued the Seven-Year Deferral plan in Senate Bill No. 2937, which is awaiting Gov. Christie’s signature after passing through the Assembly and Senate.
In addition to increasing pension contributions, the bill would also indefinitely suspend the “cost-of-living adjustments for retirees” and raise the retirement age from 62 to 65.
Republican Governor and defendant Chris Christie, who admits to skipping a pension contribution in office due to the “economic recession,” defended his actions at a town -hall meeting in Fair Lawn, N.J.
“Every governor who came before me, and now me, has to bear some responsibility,” Christie said, according to BusinessWeek. “I don’t shrink for a moment from what I’ve done.”
He told a New York Times reporter that the bill represents an “extraordinary day for New Jersey.”
“I think it’s going to be a model for a lot of people,” he said, adding that he was “advocating for the taxpayer, rather than advocating for the special-interest unions.”
Plaintiff Anthony Miskowski, a Communications Workers union member, said in a new conference that this bill was “a methodical process of starving the proverbial beast.” Plaintiff Rae Roeder, president of the union, told the media that this lawsuit “is not about the benefits paid to retirees,” but rather about “gross mismanagement by the state and its attempt to shift blame to the victims.”
The plaintiffs are suing the Legislature, Christie and Treasurer Andrew Sidamon-Eristoff for violations of the Federal Contract Clause and of their constitutional rights. They are represented by Walter Bliss of Trenton, N.J.