Recently Governor Chris Christie of New Jersey announced a plan involving retirement and health benefits which decrease the costs to the state by lowering the benefit to public workers. This comes after 5 years where his previous policy involved requiring members to pay more with the promise that the state would provide additional money. This promise did not last long as there were year on year budget cuts to pension payments.
After admitting that the 2011 reform did not help reduce costs and liabilities enough hence the need for a new plan. This plan entails freezing the old plan i.e. ending the accrual of employee contributions and new benefits with the aim of achieving a more manageable pension payment schedule.
With the freezing of old plans, new retirement plans need to be created. The suggestion is to move active members in to a cash balance plan, a hybrid of a DB and DC fund. It is similar to a DC fund as the employee benefits would show in an individual’s account.
The plan would be more attractive to younger, newer employees than it would be to the more experienced older ones. A study of a similar plan implemented in another state proved that younger employees would receive more money on the new plan than their previous DB one but older employees would receive far less. These factors could inspire the mass exodus of important public officials which will impact the effectiveness of operations. It also runs the risk of failing to attract qualified and talented individuals in the future.
The commission stated that there is more than $80billion in unfunded pensions liabilities and that there is decreasing window to make a change. But how great is the cost of this soloution going to be to the average public employee?