TRENTON, N.J. (CN) – Twenty-three public employee unions say the state unconstitutionally “reformed” their pension and benefits system. They say the new law impairs contracts, violates due process, underfunds pensions, delegates “unrestrained authority” to degrade the system even further – and that the state created the crisis by its systemic “underfunding of the pension funds since 2003.”
Led by the New Jersey Education Association and the new Jersey State Policemen’s Benevolent Association, the 23 plaintiff unions say they represent more than 802,000 members of the state pension system.
They sued New Jersey, Gov. Chris Christie, its state Senate and Assembly, and the state treasurer, challenging changes to Chapter 78 of Public Law 2011, enacted on June 28.
The unions say that public employees have a contractual right to “securely funded pension systems,” which is “based upon consideration of their years of service and constitutes deferred compensation for their work.”
The federal complaint claims the law denies workers their contractual and due process rights by increasing employee contributions, suspending cost-of-living adjustments, underfunding pension systems and giving pension committees “the unrestrained authority to reduce pension and change eligibility requirements.”
The unions claim that “by increasing the unfunded liability and decreasing the funding of TPAF [Teachers Pension and Annuity Fund], State PERS [Public Employees’ Retirement System] and State PFRS [Police and Firemen’s Retirement System] over the next seven years, the state’s funding of the pension systems, and its ability to make payments to retirees based on the pension benefit program to which they are entitled has been substantially impaired.”
Under defined-benefit plans established in the 1950s, the state must “maintain reserves sufficient to pay pension benefits when due” to retirees who have already contributed to their pension funds, the complaint states.
Gov. Christie signed the bill on June 28, as part of a plan to curb New Jersey’s $53.9 billion pension deficit.
The law reduces state contributions to pension funds by increasing active employees’ contributions, suspending cost-of-living increases for current and future retirees, and requiring public employees with fewer than 20 years of service to pay for health-care benefits after retirement.
It grants pension commissions authority to change member contribution rates, and to change the formula for calculating final compensation, disability retirement benefits and the age at which members are eligible for benefits.
It seeks to increase funding of the state pension plans to 80 percent in 30 years.
Most provisions are slated to take effect next year.
The unions say that “the increase in the unfunded liabilities and the decrease in funded ratios of TPAF, state PERS and state PFRS are attributable, in significant part, to the state’s failure to make its statutorily required contributions from 2004 to present.”
In 2010, New Jersey passed a law deferring the state’s obligation to make annual pension contributions for 7 years.
The unions say that “the schedule and use of deferral payments of contributions is inconsistent with and in contravention of standard actuarial principles and will increase the underfunding. The possibility of improvement in the funding ratio of the pension funds is thereby impeded and the security of the pension systems is eviscerated.”
According to the complaint, “Under the statutory scheme and methodology in Chapter 78, the increased employee contributions will not serve to increase the pension funds’ assets but will, instead, primarily serve to reduce the state’s obligations.
“The underfunding of the pension funds since 2003, the continued underfunding systemically imposed by the deferral period reduced employer contributions, the reductions in state contributions as a result of the increase in employee contributions, have resulted in the state reducing and suspending member benefits, while, and for the purpose of, further reducing the state’s obligations.”
The unions say that “while employed and when they retired, these class plaintiffs fully expected and relied upon the promise that they would receive the promised and required COLAs every year,” in addition to their retirement allowance.
They say that certain public employees, such as school teachers, counted on premium-free health insurance coverage after retirement.
Many public employees who are not eligible to receive Social Security benefits rely on state pensions as their primary source of income, the unions say.
They say the law violates contractual and due process rights under the U.S. Constitution and the New Jersey Constitution.
They want the state enjoined from enforcing it.
The plaintiffs include 23 unions representing teachers, police officers, county and municipal employees, communication workers, engineers, firefighters and other public employees, and 24 individual retirees.
Their lead counsel is Kenneth Nowak with Zazzali, Fagella, Nowak, Kleinbaum and Friedman.