Leslie Kan, who blogs about teacher pensions for Bellwether, writes that “New Jersey teacher are furious” because “Governor Christie has shortchanged the pension fund” and they’re expressing their anger by wearing black tee-shirts that show the number of pension payments they’ve made into the system. Kan is on their side: evil Christie promised to make certain pension payments through the 2011 pension reform legislation but he’s “break[ing] his own promise.”
Even worse, she writes, teachers don’t understand that they’re loss is greater than the missed pension payments. They don’t know, she says (and maybe it’s just me who detects a note of condescension here), that they “will actually end up paying out more towards the system in contributions plus interest than what they will get back in benefits. And, “while Governor Christie has shortchanged the pension fund, the system itself is shortchanging the majority of New Jersey teachers. Unfortunately, because of the lack of transparency and byzantine nature of pension systems, many teachers may not realize this.”
Kan is right: the pension system is in terrible shape; if it were a house, it would be under-water. But Kan is wrong to blame it all on Christie and not explore the weaknesses to the system that have far less to do with missed payments and far more to do with the fact that teacher pensions are defined benefit plans, rather than defined contribution plans. And she fails to note that even if N.J. made the payments -- which it can't because the state itself is bust and it won't because the State Supreme Court just ruled that it doesn't have to -- the pension system will still sink under the weight of its acquired liabilities.
I’m no financier, so I’d refer readers to John Bury’s pension blog, where he writes that “New Jersey employees are not picking up most of the cost of their pension benefits. They are picking up most of the costs of benefits valued using dodgy assumptions and none of the costs of the massive ($157 billion?) unfunded liability that has resulted from this perversion of actuarial principles.”
But, to Kan's larger point, how much is Christie to blame in N.J.’s pension morass? Kan says he’s the villain here, but she’s missing the big picture. Here’s a wider lens:
- In 1992 during Democratic Governor Jim Florio's tenure, the Legislature unanimously passed the Pension Revaluation Act, which cut state contributions to the pension fund by $1.5 million. This was justified by a rash overestimation of the return on investments.
- In 1994 Republican Governor Christie Whitman signed another pension reform bill that used some of the fund intended for future retirees to pay current costs. Later in her tenure she authorized the purchase of $2.75 billion in bonds to cover state pension payments instead of using actual money from the budget. (We still haven't paid the bonds back.)
- In 2001 Democratic Governor DiFrancesco increased pension payments to retired state workers by over 9 percent. The raises were retroactive; he paid for them for by inflating the actual value of available funds.
- Democratic Governors Jim McGreevy and Dick Cody continued this tradition of evading pension payments by raiding the fund to pay for tax cuts.
- Democratic Governor Jon Corzine actually made a substantial payment to the pension fund during his first year of office, but then reverted to N.J.'s habit of underfunding the system.
N.J. teachers certainly have every right to be angry. The shortfalls of N.J.’s pension system, currently $83 billion in the red (Bury says it's more) are the worst in the country. We all have a right to feel angry at and betrayed by Christie. (Here's my own recent ululation.) But Kan misses the point that until there’s acceptance of the need for reform and attendant sacrifices (see Thomas Healey’s editorial yesterday) black tee-shirt manufacturers will be the only winners.
Labels: Christie, pensions