Belt-tightening states target pensions
Public sector retirees facing cuts to benefits
TRENTON, N.J. — William Liberty began as a trash collector in Lindenwold 37 years ago and worked his way up to public works supervisor. Until recently, he figured he would hold on to the job until he turned 65.
But this month, at 62, he was preparing his retirement papers, joining a rush among New Jersey public employees.
Liberty’s reason for getting out now: He is feeling the sting of a campaign by Republican Governor Chris Christie and a growing number of other public officials across the United States to balance their budgets by making government employment — and retirement — less lucrative.
Liberty’s pay has been frozen for two years, he has taken unpaid furlough days, and now, “It’s going to get worse.’’ Pension proposals announced last week could reduce how much he receives when he retires.
Since 2008, New Jersey and at least 19 other states have rolled back pension benefits or considered doing do — and not just for new hires, but for current employees and retirees.
It’s not just a US phenomenon. In France, lawmakers recently voted to raise the retirement age from 60 to 62. If the measure wins final approval, France would become the latest European Union country to require workers to stay on the job longer because of a deficit-plagued pension system.
New Jersey’s governor spelled out the details of his proposal after telegraphing his intentions for months. They include: repealing an increase in benefits approved years ago; eliminating automatic cost-of-living adjustments; raising the retirement age to 65 from 60 in many cases; reducing pension payouts for many future retirees; and requiring some employees to contribute more to their pensions.
To be sure, the looming benefit changes are not the only reason many public employees in New Jersey are retiring. Some say they want out for the usual reasons — to spend time with the grandchildren or go fishing, for example. But other employees figure that by retiring now, they can lock in certain benefits before it is too late, although they may not receive automatic raises.
Christie has warned that New Jersey’s pension fund will go belly up unless something is done to close the $46 billion gap between how much the state expects to bring into the system and how much it has promised to workers. Other states’ pension funds are in shaky condition, too.
The Pew Center on the States reported this year that in eight states, at least one-third of the future pension obligations for all public employees, including teachers, are unfunded. As of 2008, Pew said, state and local governments had pension obligations totaling $3.35 trillion — $1 trillion of that not covered by the future stream of government and employee contributions specified under current law.
Only four states — Florida, New York, Washington, and Wisconsin — had fully funded pension systems as of 2008.
Part of the reason for the gap is that in tough times, states often skip paying their share into retirement funds. New Jersey, for instance, is skipping its $3.1 billion in payments this year. The problem is compounded when investments lose money, as many have in recent years.
In the past, states have been more likely to reduce pensions for incoming employees, while generally leaving the benefits of current workers and retirees untouched. That strategy can be a way around objections from unions and lawsuits from those who say the government is reneging on promises.
Keith Brainard, research director for the National Association of State Retirement Administrators, said it may be unprecedented that so many states at once are raising employees’ pension contribution rates.
Among the developments around the country:
■ In Mississippi, employees of state and local governments and school districts are now being required to put 9 percent of their pay into the state retirement system, up from 7.25 percent.
■ Rhode Island in 2009 reduced cost-of-living increases and tightened eligibility requirements. Previously, employees could retire with 28 years of service. Now, those already employed by the state will have to meet a new standard that takes both age and years of service into account.
■ In Wyoming, as of Sept. 1, employees will have to start paying 1.4 percent of their salaries into a pension fund — the first time in a decade the workers have had to contribute anything.
■ Lawmakers in Colorado, South Dakota, and Minnesota rolled back cost-of-living increases this year for public employees who already have retired. In Colorado, retirees had gotten 3.5 percent annual increases. They are getting no increase at all this year, and future ones will be capped at 2 percent. Legal challenges to the cuts have been filed in all three states.