Working Towards A Stable And Secure State Pension System
The other day I was playing the old game hot potato with my three-year old son and it dawned on me how the game could be a metaphor for New Jersey’s pension dilemma. Stay with me on this one. The game we were playing was Hot Potato. As you may recall from your youth, the object of the game is to keep the ball or object moving between those playing so that when the clock stops or the music runs out you are not left holding that “hot potato”. For those wondering, TJ lost the game.
In the real life, high-stakes, state pension version of the old game, no matter which elected officials are left holding the hot potato, it is all of us, as taxpayers, who will come out losers.
This “hot potato” thinking is exactly the logic that has gotten us into the current situation facing our state. Years of delay, dishonesty, dysfunction and frankly willful disobedience to the State’s pension payment obligation by Democrat and Republican administrations have us facing a challenge that threatens our State’s long-term fiscal solvency.
Rather than vilify our state workforce through sound bites, press releases or You-Tube moments, let’s engage all the stakeholders in an effort to find a solution.
That engagement begins with understanding the root cause of the problem and what principles we should use to guide us to a solution. The Star Ledger recently posted a story about my attempts to begin this conversation with various stakeholders.
A greater focus on public spending at the state and local level, brought about by the fiscal conditions of recent years, has brought this issue front and center onto the political stage. Some of these conditions are systemic of a national recession that the country has slowly begun to emerge from, but the lack of a New Jersey comeback rests squarely on the policies of this administration.
Years of budget mismanagement, overinflated revenue figures, and credit downgrades have finally come home to roost. Governor Chris Christie’s abrogation of the scheduled pension payment was a devastating decision that will haunt taxpayers for years to come. His actions further exacerbates the combined $108 BILLION in unfunded liabilities for future pension and retiree healthcare costs.
This staggering figure chokes our State’s ability to provide the resources necessary for innovation in the classrooms, relief for property taxpayers and investments in our infrastructure. It also leads to the false presentation, by some, that we must make a choice between being pro-taxpayer or pro-public employee when meeting this challenge.
In my opinion, we should use three simple principles to evaluate any pension reform plan put forth by the Governor’s newly empanelled Pension & Benefits Task Force: (1) ensuring the fiscal sustainability of the pension system, (2) safeguarding current and future taxpayers from financial brinkmanship and (3) providing true retirement security to our state workforce.
The existing system has failed because we have seen by Governor Christie's recent actions, and those of his predecessors, it's too easy to renege on the financial obligation to make those pension payments. Whether that is because of misguided political ideology or economics, this will likely continue without corrective action.
Equally important to note, 401(k) styled retirement programs will not solely work to address our state's needs either. By their construction, these programs cannot be underfunded. However, they do not provide the level of security necessary for those who have no choice but to rely on this as their sole retirement vehicle.
It's difficult to have any discussion about pension reform unless the state's required payment is made. That's why I stand in full support of the leadership shown by Senate President Steve Sweeney and Assembly Speaker Vincent Prieto in advocating for the state to honor it's full obligation.
That's said, we need creative thinking that challenges our political and policy sensibilities. It's why I have been researching an idea that would keep the pension system in place for those already enrolled, but shift new public workers to a collective defined-contribution retirement program - a mix between a traditional pension plan and a 401(k).
Workers would establish accounts that they and their employers would pay into. The investment returns would be annually credited to the retirement accounts, but if a return is more than 8 percent, the excess would go into a reserve fund if the investments lost money. The idea is to combine the strengths of both a defined-benefits plan such as regular payments in retirement, professional management, pooled investing and risk sharing - with elements of a 401(k) such as predictable costs for employers and portability for workers.
There many unanswered questions about this concept, and that's why I have been discussing this proposal and soliciting feedback on it.
However, this is the bottom line. I have always prided myself on being willing to talk and listen to others as we try to solve our state's biggest challenges. I may not have the ultimate solution to those challenges but I know that by working together and engaging different viewpoints, we can come up with something.
"There are no monopolies on good ideas" - is an expression that runs in my family. If we take this opportunity to bring all stakeholders in on the conversation, we can begin to move towards a real long lasting solution that makes "Pension Hot Potato” a game of the past. That's my take. What's yours?