June 8 (Bloomberg) -- New Jersey Governor Chris Christie and Senate President Stephen Sweeney agreed on an overhaul of state pensions and benefits, according to two people with knowledge of the accord.
Christie, a first-term Republican, and Sweeney, a Democrat, agreed to a package that would raise workers’ payments into pensions and health care and increase the retirement age, said the people, who declined to be identified because they weren’t authorized to speak publicly about the deal. Assembly Speaker Sheila Oliver, also a Democrat, said her house isn’t behind the deal yet.
The governor has urged the Democratic-led Legislature since September to pass measures to reduce a $53.9 billion pension deficit. His accord with Sweeney is projected to save state and local governments $122 billion over the next 30 years in pension costs, according to a memo obtained by Bloomberg News. Health-care savings weren’t detailed.
“It’s definitely positive given how the rhetoric has been so adversarial,” said Dan Solender, who oversees $14 billion as head of municipal bonds at Lord Abbett & Co. in Jersey City. “The more years the funding is deferred, the bigger the issue becomes.”
Michael Drewniak, a spokesman for Christie, declined to comment in an e-mail. Derek Roseman, a spokesman for Sweeney, declined to comment on the agreement, which needs approval from both legislative houses.
Assembly Democrats discussed the plan today in a closed-door caucus and in a statement issued after that meeting Oliver said she “looks forward to talks” with Sweeney and Christie.
“I continue to believe that we need health-benefits reform to protect taxpayers, but I have maintained all along that there needed to be significant support in my caucus to move forward,” she said in the statement. “We are not there yet.”
New Jersey’s pension system, providing benefits to almost 800,000 current and former workers, has a deficit that grew 18 percent in a year from $45.8 billion as of June 2009 as the state failed to make contributions. Nationwide, states are grappling with pension-funding gaps of as much as $479.5 billion, according to data compiled by Bloomberg.
Christie skipped a $3 billion pension payment last year, saying he wouldn’t put more money into a “broken” system. The governor will make a $759 million payment as soon as lawmakers approve his overhaul plan, Treasurer Andrew Sidamon-Eristoff said in May.
The pension underfunding and rising health-care costs were cited as concerns by Moody’s Investors Service in April when the credit-rating firm downgraded the state’s debt one step to Aa3, the fourth-highest level.
Moody’s included Christie’s September proposals in that decision, along with a 2010 law requiring the state to return to full contributions over seven years, said Baye Larsen, a Moody’s analyst in New York. During the phase-in, the unfunded liability will continue to grow and local and state governments will still be squeezed by pension costs, she said.
“Our opinion is that any move to decrease the liability and improve the state’s ability to fully fund pensions is a positive move,” Larsen said today in a telephone interview. “It’s not a matter of going far enough. From our perspective it’s a matter of timing and of making the incremental increases in annual contributions.”
The agreement between Christie and Sweeney aims for 80 percent funding of the pension system within 30 years, up from the current 62 percent, the people said. State and local government employees and teachers would face an immediate increase in pension contributions to 6.5 percent from 5.5 percent, and another increase to 7.5 percent phased in over seven years, they said.
U.S. public pension funds have 76.1 percent of the assets needed to meet their retirement payments, according to a survey of 215 plans released today by their trade association. The funds surveyed, which have $900 billion of assets and cover 7.6 million workers, are making changes “to ensure their long-term sustainability,” said the report from the Washington-based National Conference on Public Employee Retirement Systems.
Under the agreement between Christie and Sweeney, judges would move to 12 percent pension contributions, from 3 percent, while police officers and firefighters would face an immediate pension contribution increase to 10 percent from 8.5 percent, the people said.
The agreement would raise the minimum retirement age for new workers to 65 years old, from 62. It would abolish annual cost-of-living raises until the pension system reaches 75 percent funding, at which time a newly formed board would have the discretion to reinstate the adjustments, the people said.
New York Governor Andrew Cuomo, a Democrat, proposed the same increase in retirement age for new workers in his state today, as well as prohibiting “pension spiking,” or the use of overtime to inflate pension calculations. Under his proposals, employees would become vested after 12 years instead of 10, and wages above the governor’s $179,000 salary would be excluded from benefit calculations, according to a statement.
The New Jersey deal would phase in higher health-care premium contributions over four years, the two people said. The levels would be based upon earnings in order to shield low-income workers. The people declined to disclose a target for the increased payments. Christie has called for workers to contribute 30 percent of the cost.
Currently, government employees contribute 1.5 percent of their salaries toward health-care premiums, an average of about 8.5 percent of the cost. The accord between Sweeney and Christie would change that to have workers pay a set proportion of premiums. Employees with 25 years or more of service, or those 55 and over, wouldn’t see any changes in their health-care plans, according to the memo detailing the plan.
The deal didn’t include Christie’s September proposal to roll back a 9 percent pensions-benefit increase enacted in 2001.
The agreement would alter how government worker contracts are settled in cases of an impasse. The deal would also end the governor’s right to impose a contract if the state can’t reach an agreement with labor, instead moving to mediation.
Hetty Rosenstein, state director for the Communications Workers of America, New Jersey’s largest government-workers union, said her organization will “put all of its resources” into opposing the measure.
The union, representing more than 40,000 state and local workers, is negotiating a four-year contract with Christie’s administration. It has offered to raise to 13.5 percent the amount its members contribute to health-insurance premiums.
“This is an outrageous attack on the collective-bargaining rights of New Jersey’s public workers and their standard of living,” said Bob Master, political director for the union. “Nowhere else in the country have Democrats turned their backs on working people.”
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