Almost a year ago the New Jersey Pension and Health Benefit Study Commission issued their report "to discover a cure for the problems plaguing New Jersey's public employee pension and health benefits system". As one of my wealth management partners would say "Very simplistically", the State wishes to wash its hands of the mess that it created. The State wishes to do this by 1) merging the unfunded state plans with the well-funded local plans; 2) passing the cost of teachers' pensions to local school districts; 3) putting the risk of pension performance on government employees through "employee entities" generally meaning unions; 4) reducing health benefit costs by having government employees increase their cost of health care expenses; 5) "freezing" current pension benefits; and 6) implementing "cash balance" retirement programs.
I will not attempt to go into detail trying to dissect the above listed "solutions". Instead, I think it makes more sense to take a step back and really look at the entire issue and ask the question – What really has to happen here?
My answer is not a favorable one – we need to compromise and agree on a long-term solution to the pension and health benefits issues.
Full disclosure – my wife works in a school district and is enrolled in the Public Employees Retirement System as part of the "other than state" plan. If she retires under the present system she and I would receive health benefits for life.
While I cannot emphasize how much I hate the idea of bailing the state out from decades of misuse of taxpayer dollars and incredibly poor decisions – I do not see an alternative that makes sense. However, I disagree with some of the basic conclusions in the report on the use of the "savings".
Bear in mind – I view this as a negotiation with the state and not a case of the state telling local governments; including local school districts and counties; and citizens how things are going to be in this situation. If the state wants local governments help, and they not only want that help they need the help of local governments, then the state needs to make concessions to local governments.
Below are a few of the items/issues that local governments could consider requiring as conditions for agreeing to the Commission's solutions:
Finally, increased health benefit care costs to government employees and less beneficial retirement programs increases the need for effective financial planning for these employees. Governments are the gatekeepers for deferred compensation plans that are available to their employees. Governments have a fiduciary responsibility to provide a wide variety of products and plans to employees along with information regarding the features, benefits and performance of the products and plans to better assist employees in determining which products and plans best suits their needs.
Pensions and cash balance retirement programs alone will not be enough to allow employees to live successfully in their retirement without having other resources available to them. Education early in government employees' careers along with and a variety of deferred compensation programs and effective financial planning should help employees enjoy a successful retirement.
New Jersey's increasing pension and health benefit costs will swiftly become a crisis if effective reforms are not taken soon. We all will have to pay some part of the cost of fixing these systems for ourselves, our families, our current and future citizens. Why not reform these systems and at the same time make some needed reforms to improve local government operations.
For more information, contact Bud Jones, CPA, RMA, PSA at (973) 328-1825.