State Assemblyman Declan O’Scanlon Jr. (R-Monmouth and Mercer) has proposed legislation to reform the state’s pension system and avoid a future fiscal crisis that could end in bankruptcy.
“If we don’t do [the reforms], the pension system will swallow massively increasing amounts of our budget every year over the next few years to the point where the system will fall apart,” O’Scanlon said.
The bill, A-3796, which he co-sponsored withAssemblyman Gary Chiusano (R-Hunterdon, Morris, Sussex), would increase the retirement age for public employees to 65, increase years of service before retirement to 30, and increase contribution rates for all pension systems to 8.5 percent, O’Scanlon said .
Currently, retirement age for most public employees is 60 and pension contribution rates for the various systems range from 3 percent to 8.5 percent. Members of the largest public employee pension and teachers’ pension systems currently pay 5.5 percent, said O’Scanlon, who is the Republican budget officer for the Assembly. According to the two-term assemblyman and Little Silver resident, the legislation would revise the rate of future benefit accruals and eliminate cost-of-living adjustments.
“Employees get to keep what they have accrued so far, but as of the implementation date, it would bring that back up to a more workable situation,” he said.
However, O’Scanlon said he expects the Democratic majority in the Legislature to resist his sponsored pension reform bill.
“It’s likely that the Democrat legislative leadership will stand in the way of it and not let it get a hearing,” O’Scanlon said of the bill .
He said an alternative proposal from the Democrats could potentially interfere with the passage of his bill.
State Senate President Stephen Sweeney (D-Gloucester) has sponsored an alternative pension reform bill, S-2696.
S-2696 proposes that boards of trustees for each pension system set benefit and contribution levels, in addition to eliminating cost-of-living adjustments and recalculating the rate of accruals, though at a rate slightly different than that proposed in A-3796.
O’Scanlon called the Assembly legislation the most significant policy reform in New Jersey in the last 20 years. “It’s trying to fix our extremely broken pension system, which, if we continue to bury our heads in the sand, will essentially bankrupt this state,” he said in an interview. “It will both crush taxpayers and leave people who are paying into the pension system with drastically reduced or no pensions.”
There is a dramatic difference between future projections of the system’s condition, O’Scanlon said.
“If we don’t do anything, the state’s contribution will go from $500 million this year to more than $13 billion 30 years from now,” he said. “That will just gobble up our budget and prevent us from functioning as a state.”
The system would still only be approximately 50 percent funded, he added, while a healthy system should be more than 80 percent funded.
“With our reforms, our pension payment obligation goes from $500 million this year to around $6 billion 30 years from now, and we will be at 90 percent funded. It’s dramatic,” he said.
The reforms would have a direct impact on property taxes as well, O’Scanlon said, by drastically reducing the local pension system payment obligation in the future.
The risk of insolvency these systems face, O’Scanlon said, makes these reforms as important for public employees as they are for taxpayers.
“This is not an attack on police, fire or other public workers, this is simply fixing a system. It is as significant to them to have this fixed as it is for taxpayers,” he said. “The longer we wait, the more serious the situation will be and the harder it will be to fix. ”
Previous administrations have not addressed the issue, he said, much to the detriment of taxpayers and public employees alike.
“This is the first real reckoning of this that has been proposed by any governor ever,” he said.
O’Scanlon said the bill strives to balance the interests of taxpayers and public employees.
“We don’t want to pare people’s pensions any more than we have to, but we have to pare [pensions] to a point where taxpayers will be able to afford it, where the promise we make is one we can keep,” O’Scanlon said. “If not, we’re just kidding ourselves and kicking the can down the road, creating a need for future reforms that would be even more severe than this.”
The bill has not had any hearings yet, but it has been referred to the Assembly State Government Committee, according to the New Jersey Legislature’s website.
“These reforms done now will take us where we need to go; we’ll have a manageable payment and we will be properly funded,” O’Scanlon said.
These proposed reforms reflect Gov. Chris Christie’s larger agenda and have been a major focus of the governor’s second year in office.