Bloomberg News

New Jersey, Christie Sued by Unions Over Pension Cutbacks

September 01, 2011

(Updates with Assembly speaker in penultimate paragraph.)

Sept. 1 (Bloomberg) -- New Jersey public employee unions, seeking to block a law reducing pension and health benefits, sued Governor Chris Christie and other state officials.

More than 20 unions and individuals representing teachers, firefighters, police officers and other public employees claim the law enacted June 28 violates the U.S. and state constitutions by forcing them to pay more for pensions and health insurance. In a complaint in federal court in Trenton, New Jersey, they asked a judge yesterday to block enforcement of the law and order the state to fully fund the pension systems.

The law “illegally takes away benefits that school employees and others have already earned through their service to the people of New Jersey,” Barbara Keshishian, president of the New Jersey Education Association, said in a statement on the union’s website.

Christie, a first-term Republican, has made addressing the state’s fiscal crisis a hallmark of his administration. Christie has said he skipped a contribution to the state pension system, which had a deficit of $53.9 billion in June 2010, because of the recession. Skipped payments by previous governors were a “contributing factor” to the current problems, he said.

“Another lawsuit won’t change the fact that the public employee pension system was on a collision course with collapse without the governor’s and the Legislature’s bipartisan intervention,” a Christie spokesman, Michael Drewniak, said in a statement.

‘Oblivious’ Union

“The union leadership is unaccountably oblivious to that,” he said. “So, fine, file another lawsuit, keep your heads in the sand and ignore the problem. We will defend as necessary our pledge to fix the public employee pension system for all employees, former, present and future.”

The law deprives workers of their due process rights by suspending pension adjustments, increasing employees’ contributions, underfunding pensions and delegating to pension committees an “unrestrained authority to reduce pension and change eligibility requirements,” according to a copy of the complaint on the education group’s website.

The complaint wasn’t immediately available through the court.

Those suing seek to represent current and retired employees in the pension system, estimating they number more than 802,000.

‘Bait and Switch’

The legislation is a “classic bait and switch for current retirees,” Keshishian said in the statement. “They’ve already retired and are living on a fixed income. Now they’re being told that the state is reneging on its promise.”

The legislation also raises the minimum retirement age to 65 from 62 and freezes annual cost-of-living adjustments. The overhaul is aimed at restoring the state pension system to 80 percent funding in 30 years, up from the current 62 percent.

Workers will pay 3 percent to 35 percent of their health- insurance premiums based on income. Christie’s initial proposal sought to force all workers to pay 30 percent of the premium cost by 2014.

One of the defendants is Senate President Stephen Sweeney, a Democrat from West Deptford who sponsored the bill and is a union organizer with the International Association of Ironworkers. He said he expected the lawsuit.

“When we wrote the legislation, we really focused on being sure that any law that got passed was constitutional,” he said.

Roots of Underfunding

Sweeney said that during the 1990s, New Jersey lowered workers’ pension contributions at the same time it lowered the retirement age legislatively, without guaranteeing funding to support the moves.

With skipped payments into the fund for a decade and a 9 percent increase on pension payouts in 2001, the system was stretched beyond repair, he said.

“This isn’t Wisconsin,” he said in an interview. ‘We don’t hate our workers. What’s going on is that we have structural problems in the pension system due to this lack of payments by the state government but also through overly generous benefits that were granted. We had to fix it.”

Sweeney said collective bargaining over health insurance will return after four years and cost-of-living-adjustments will resume when the fund is restored to health. He said the pension overhaul created labor-management boards, did not reduce payouts and required funding of future benefit increases.

The moves are designed to create a state system akin to private-sector pensions regulated under the federal Employee Retirement Income Security Act, he said.

“The state doesn’t have the mathematical ability to keep those promises,” Assembly Speaker Sheila Oliver, a Democrat from East Orange, said in an interview. “We made promises to provide people with health care for the rest of their lives after they retire and we don’t have the money to pay for that. A problem exists, and that problem has to be solved.”

The case is New Jersey Education Association v. State of New Jersey, 11-05024, U.S. District Court, District of New Jersey (Trenton).

--With assistance from Terrence Dopp in Trenton, New Jersey. Editors: Michael Hytha, Charles Carter

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net; David Voreacos in Newark, New Jersey at dvoreacos@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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