States Look to Reduce Unaffordable Benefits to Workers & Retirees

PORTION OF AN ARTICLE ON STATES, UNION BENEFITS AND PENSION COSTS PUBLISHED TODAY BY BLOOMBERG NEWS

In New Jersey, the pension system lost $15 billion in the
year ended June 30, 2009, a period in which the S&P 500 dropped
28 percent. That left state funds, which cover about 800,000
teachers and government workers, with $89 billion of assets to
pay $135 billion of benefits, according to the most-recent
actuarial report. The state has set aside nothing to cover $56
billion in health-insurance benefits promised to retirees.
In response, Christie, a 47-year-old Republican who took
office Jan. 19, proposed that employees still working after Aug.
1 contribute to health care and get lower benefits, encouraging
those like the Hartmanns to retire now under current terms.
“The pension for our retirement was part of the reason we
took these jobs,” said Mark Hartmann, 59, a business manager in
the Treasury Department’s tax division in Trenton, the state
capital. His wife, Janet, 58, a reading teacher since 1976 in
Hillsborough in central New Jersey, wants to keep working, he
said at a retirement seminar last month. “But if it’s going to
cost her in her retirement, how can she?”

Added Costs

The 3,294 teachers who began collecting benefits last year
through New Jersey’s Teachers Pension and Annuity Fund, the
largest of the state’s seven retirement systems, receive on
average $49,378 a year, the fund’s latest report says.
Christie’s plan to charge retirees 1.5 percent of their benefits
to pay for health care would cost each about $741 a year.
Christie also has proposed rolling back a 9 percent benefit
increase that was approved by state lawmakers in 2000, a change
that would cost retirees of the age and experience of the
Hartmanns about $2,500 a year, based on the most-recent
actuarial reports.
“We need to get to the problem of present employees,”
Christie said in his Manhattan Institute speech. The state must
“say no” to unions that assert they have “a birthright to
ever-increasing benefits,” Christie said.
Christie and others unfairly blame public workers for
pension-funding gaps caused by poor investment returns and
deferred state payments, said Robert Master, legislative and
political director in New York and New Jersey for the
Communications Workers of America, New Jersey’s largest state-
worker union.

Private Destruction

“You’ve seen the destruction of the defined benefit almost
completely in the private sector,” he said in a telephone
interview, referring to pensions with guaranteed payments. “So
it becomes very easy to whip up resentment against public
employees.”
Michigan, whose school-employee pension fund lost almost $5
billion in the year ended Aug. 31, according to its most-recent
report, is trying to lure 28,000 of its 270,000 teachers and
other education workers into early retirement. Those who leave
by June 11 would receive enhanced benefits, saving school
districts $681 million this year by replacing higher-cost
veterans with entry-level staff.
New York, the second-largest public pension fund after
California, cut benefits for those hired in 2010 after assets
declined $45 billion in the year that ended March 31, 2009, to
$109 billion. In Nevada, where the $19 billion pension lost $3.5
billion in the year that ended June 30, 2009, benefits were
lowered for new hires and the retirement age went to 62 from 60
for most.

25 Percent Loss

U.S. public pension funds posted a median loss of 25
percent in 2008, according to Wilshire Associates. As the value
of assets declined, benefit payments to retirees grew 8 percent,
to $175 billion in 2008 from $162 billion a year earlier,
according to the Census Bureau.
New York’s pension costs rose 16 percent annually between
1999 and 2009, faster than any area of spending except property-
tax relief and almost triple the overall growth rate, documents
for a recent bond sale show. Pennsylvania’s payments will rise
to $4.6 billion in 2013 from $561 million this year without
changes, Governor Edward Rendell’s February budget proposal
showed.
New Jersey’s $3 billion payment for the fiscal year that
starts July 1 is almost four times what it contributed in 2004
and more than 10 percent of its entire $29.3 billion budget,
according to documents for a 2010 bond offering. The state will
skip the payment, as it did with $4.6 billion of installments
due in 2009 and 2010, to balance its budget.

Borrowed Payments

Illinois, which finished the 2009 fiscal year with less
than 40 percent of the funds needed to cover promised benefits,
borrowed $3.5 billion this year to make its payments. The state
will borrow a similar amount for pensions next fiscal year under
Governor Pat Quinn’s proposed budget.
To protect its credit rating, the second-lowest of any
state after California, Illinois cut benefits and raised the
retirement age for future employees to save its pension $250
billion over 35 years. States that don’t do likewise “could be
setting themselves up for greater hardship,” Standard & Poor’s
said last month.