US Supreme Court Declines To Hear NJ Pension Case

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The US Supreme Court announced February 29 that it will not hear the pension case brought by public employees, including administrators and teachers.  The justices denied the petition for review, leaving in place a June New Jersey Supreme Court ruling that said the State could not be compelled to make a scheduled pension payment as required by P.L.2011, c.78 (commonly referred to Chapter 78) into the declining public pension system.

The Case

Chapter 78, the bi-partisan pension reform legislation endorsed by Governor Christie as a core achievement of his administration required members of the various pension systems, including those in the Teachers’ Pension and Annuity Fund (TPAF), to make increased pension contributions in exchange for the State getting back on track with their pension payment obligations. That same law also eliminated retirees’ cost of living adjustments, continued the tiering of public employee pensions and created a constitutionally protected contractual right to payment of the pension contribution by the State.

In June 2015 however, the NJ Supreme Court found in Burgos v. State, 222 NJ 175 that the State’s requirement payment was subject to the appropriations process and that barring a public referendum, the Legislature could not legally bind future legislatures with a mandatory payment schedule. The Burgos decision also found that Chapter 78 violated the ‘Debt Limitations Clause’ of the NJ Constitution, absent voter approval.

In response, public employee unions, including NJPSA, filed a petition with the US Supreme Court back in September of 2015, asking the U.S. Supreme Court to apply federal contract protections to the agreement between the state and public employees that the state Supreme Court had declared “unenforceable” in June.  The unions argued the agreement ostensibly created a contract entitling them to pension contributions, while the administration said that arrangement violated certain state constitutional principles dictating how the state appropriates money and accumulates debt.

The U.S. Supreme Court was the unions’ last hope in trying to enforce the agreement via legal channels.

Next Steps

Not knowing whether the Supreme Court would hear the matter, public employee groups, including NJSPA, worked with the NJ Legislature to insert the obligation to fund public pensions into the state constitution. The Legislature has held one of the two votes required to put a referendum on the fall ballot, asking voters to amend the constitution.

The amendment:

  • Requires a responsible, phased- in funding schedule that makes full actuarially required payments by 2022;
    • Mandates the state to make its pension payments annually and on a quarterly basis;
    • Protects the right of vested public employees to their earned pension benefits; and
    • Provides that pension funding obligations would be enforceable in court.

Opponents of the measure say it would constrain the state’s ability to respond to economic downturns, forcing either drastic spending cuts or tax increases, while supporters, like Senate President Stephen Sweeney (D-Gloucester), say that without it, the state would have to write retirees’ pension checks from the general treasury.

The Governor has bashed that plan, most recently in his budget address, saying it puts government workers ahead of everyone else. His administration a year ago offered a proposal to overhaul pensions and health benefits that hasn’t gained traction in the Legislature. It would freeze the existing pension system, shift workers onto a cash balance pensions plan and less generous health care plans.