When New Jersey Gov. Phil Murphy proposed his budget for the fiscal year starting July 1, he said “we have refused to abandon our commitments to our pension system” as he proposed making a record $7.16 billion payment — the fourth consecutive full contribution required for improving the system.
Given a severely underfunded New Jersey Pension Fund, Murphy’s remarks were welcome, but achieving pension system health has a long way to go.
Political battleground
New Jersey can’t fix the past, but improving the present will be a challenge because the pension system is a battleground between political pressure and financial reality.
“You can’t keep increasing benefits if you are underfunded,” said Richard Keevey, referring to efforts by retirees and union members to improve benefits. Keevey is a senior policy fellow at the Edward J. Bloustein School of Public Planning and Policy at Rutgers University.
A state Supreme Court ruling prevents the pension fund from raising cost-of-living adjustments even in periods of high inflation. The court upheld the denial of cost-of-living increases in a 2016 ruling that said a 2011 law suspending COLAs was constitutional. Then Gov. Chris Christie froze COLA increases, which was challenged by public employee unions and other plaintiffs.
Legislators haven’t changed the COLA law. However, if the funding ratio hits 80%, the law says legislators could consider raising the COLA.
As long as the state keeps paying 100% of the ARC annually, “they are moving in the right direction,” said Keevey, a former state budget director and state comptroller.