NJ Supreme Courts Takes Up COLA Case

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The New Jersey Supreme Court announced July 30 that it will hear arguments on whether the State acted improperly in suspending the annual retiree cost-of-living adjustments (COLA).  The suspension was part of changes wrought by the enactment of P.L.2011, c.78.   NJPSA has been a plaintiff in the matter since employee groups brought action in response to the suspension.

The decision to hear the matter comes after the surprising decision last month where the Court ruled that the State could not be compelled to make the required payment under the payment schedule codified in the same law.

The suspension of the COLA was projected to save the state a total of $120 billion over three decades. Christie’s administration has held firm to those estimates even after the state pension contributions that were pledged as part of the 2011 law have been shorted by more than $2 billion over the past two fiscal years.

Losing the legal challenge on the cost-of-living issue could eliminate more than $70 billion of the overall projected savings, which would increase an unfunded liability already measured to be at least $40 billion. It would also mean the only major component of the 2011 law on the pension side that will have survived legal challenges is increased employee contributions toward their retirements.

The fundamental question is whether the COLA increases should be considered on par with retired workers’ non-forfeitable pension benefits or as an add-on that governors and lawmakers can take away by law.  Last year, an Appellate Division ruling agreed with 26 former assistant and deputy state attorneys-general who argued in their original lawsuit that the cost-of-living adjustments are a contractual right. That decision overturned a lower court’s ruling that found the annual increases to be a financial commitment that under the state constitution is not guaranteed, but “subject to appropriation” each year during the annual budget process.

The court’s decision to take up the cost-of-living adjustment case comes even as trustees for three of the retirement funds that make up the state’s broader $80 billion pension system are seeking legal judgment against the state to ensure it still lives up to the funding promises that were made in Chapter 78.

The Court could take up the cost-of-living adjustment case as early as this fall.