N.J. Teachers’ Union Contests Pension-Fund Change

By Karen Diegmueller — November 02, 1994 2 min read

The New Jersey Education Association and the Communications Workers of America charge in a lawsuit against the state that a change in the public-employee pension formula violates contractual, constitutional, and property-rights laws.

The suit, filed last month in U.S. District Court in Newark, asks the court to stop State Treasurer Brian Clymer from administering the formula change.

Under the revised policy, which took effect July 1, the state substantially reduced the level of payments it makes to the pension system and increased workers’ contributions to the fund.

The first payment was due July 1, according to the N.J.E.A.

The formula changes actually affect two pension funds--one covering school personnel, the other state and local government employees. Both plans are funded by contributions from both employees and employers.

Gov. Christine Todd Whitman used the savings generated by the formula changes to help offset the state income-tax reduction for which she has gained national recognition.

The union has been fighting potential cutbacks in the pension fund since the days of former Gov. James Florio, who also proposed a change in the formula to help make up a budget shortfall.

The lawsuit claims that “the changes undermine the fiscal and financial integrity of the [pension funds], render both unsound, contravene basic actuarial principles of funding public pension plans, and seriously jeopardize future benefits because the state will simply not be able to provide the enormous amount of money required as a result” of the changes.

‘A Crushing Burden’

According to the union, the new formula will result in a $5 billion reduction in employer contributions by June 30, 1998.

“Because the money is not invested today, the scheme creates a crushing burden that future generations will have to bear,” Dennis Testa, the president of the state teachers’ union, said.

Elisa Riordan of the Communications Workers of America noted that both funds are “defined benefit” plans and that a certain amount of money must be available for benefits no matter what funding methodology or actuarial assumptions are used.

Carl Golden, a spokesman for Mrs. Whitman, said actuaries, bond-rating agencies, and the Governor’s legal staff had scrutinized the formula change.

It is a “prudent step that did absolutely nothing to undercut the integrity of the pension system,” Mr. Golden said. “It does not have the impact that this group has based its suit on.”

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A version of this article appeared in the November 02, 1994 edition of Education Week as N.J. Teachers’ Union Contests Pension-Fund Change