Thursday, June 25, 2015

New Jersey Supreme Court Rules in Favor of State on Pension Payments

Illinois may be one of the worst in the nation in pension funding, but it’s not the only state struggling to figure out how to address the issue. Unlike Illinois, though, where the Supreme Court recently struck down the pension reform legislation, the New Jersey Supreme Court earlier this month upheld the government’s refusal to fully fund public pension systems.

New Jersey law, like Illinois, has legislation which grants to public pensioners a “non-forfeitable right to receive benefits”. It also enacted legislation in 2011 that contractually obligates the state to “contribute timely, annually scheduled, required payments to the pension funds, thereby addressing the alarming current unfunded accrued liability and restoring the various funds to fiscally sound levels.” Does this sound like a familiar problem to the people of Illinois? In essence, the state made a contractual promise to pay into the funds to bring them up to acceptable levels of funding.   The problem arose in 2015 and 2015 when the state failed to make the appropriate payments. Naturally, various public employee unions filed suit.

The New Jersey Supreme Court upheld the state’s failure to fund, as required by the 2011 legislation, finding that while public employees had a constitutional right to pension benefits, that obligation conflicts with the Debt Limitation Clause of their constitution. This Clause establishes a ceiling on debt created by the state and any law that would have the effect of exceeding that limitation would require voter approval. The court resolved the conflict in favor of the state’s obligations under the Debt Limitation Clause. The court stated further that efforts to dedicate monies through legislative acts other than the annual appropriation act have no binding effect and that the state and the Governor had no authority to enact an enforceable long term agreement through the pension statute that skirted the appropriation duties of the state.

Although New Jersey is temporarily relieved from higher public pension funding obligations, it remains in the same quagmire as Illinois and many other states. Like Illinois, it still  has to figure out how to solve its public pension crisis.