Christie Vindicated on|New Jersey Pension Cuts

TRENTON, N.J. (CN) — State employees who lost cost-of-living increases to their pensions as part of a $70 billion belt-tightening by New Jersey Gov. Chris Christie suffered a critical court defeat Thursday.

Today's reversal by the New Jersey Supreme Court, which says the state need not keep pension payments in pace with inflation, means retired state employees will likely see their pension benefits shrink in real dollars in future years.

New Jersey effectively froze cost-of-living increases to the pensions of current and future retirees with pension-reform legislation called Chapter 78 in 2011.

The pension-benefit freeze was only component of cuts Christie took to the state pension fund, in a bid to save New Jersey roughly $70 billion.

Considered the most underfunded in all 50 states, the New Jersey pension fund operates at a deficit of nearly $60 billion.

Two dozen retired state employees and unions challenged the cuts in a lawsuit, saying New Jersey had a contractual right to fund cost-of-living pension increases.

Though a judge dismissed the lawsuit, the New Jersey Appellate Division reversed, ruling that the state had a "protectable contract right" to fund cost-of-living adjustments (COLAs).

The New Jersey Supreme Court sided with the state 6-1 today, finding that New Jersey never clearly guaranteed cost-of-living adjustments to pension benefits, and that arguments to the contrary would "hamstring" the state legislature.

"To find a contract created by statute means that the legislature binds itself to a policy choice and surrenders the power of future elected representatives to cut back on that choice," Justice Jaynee LaVecchia wrote for the majority.

Just because New Jersey legislators did not exclude COLAs in 1997 — as they had excluded medical benefits that year — LaVechia said the "unmistakability doctrine" means that they were not therefore contractually bound to provide them.

Indeed, New Jersey did not have to mention COLAs in that 1997 law excluding medical benefits because it provided the adjustments under separate legislation, the 2006 Pension Adjustment Act.

"The statutes governing the retirement systems or funds may reference COLAs and provide the mechanics for their funding, but they do not confer them," LaVecchia wrote. "Only PPA does that."

A state legislature could create contracts for itself only after meeting "a high bar" with very clearly worded legislative intent, according to the ruling.

Though the unions had pointed to legislative hearing transcripts from 1996, the court today saw little evidence that New Jersey legislators intended in 1997 to include COLAs as a guaranteed right to pension fund members.

"Much of the [1996] hearing focused on the actuarial soundness of the pension funds," LaVecchia wrote of the hearing, much of which had been conducted by only one senator. "We can reliably cast the senator's statements as his personal thoughts on the topic ... [and] cannot accept that to be a definitive and unmistakable pronouncement of legislative intent."

Justice Barry Albin's dissent says the 1997 law and other pension statutes clearly incorporate the PPA and therefore provide for COLAs.

"Sometimes a plainly written statute is just a plainly written statute," he wrote, noting that cost-of-living adjustments had been part of the state's pension system since 1958.

"Public employees relied on [the 1997 law's] language in deciding whether and when to retire," Albin wrote. "Without the guarantee of a cost-of-living adjustment, many public employees may have determined that they would be unable to financially support their families and may have postponed their retirements."

Today's ruling is the second major hit against pension members. It comes a full year after the New Jersey Supreme Court rejected the unions challenge to Christie's 2011 pension-funding cuts.

In that 5-2 decision, the court said New Jersey's legislature had to "get its financial house in order."

Albin had dissented in that case as well, calling Chapter 78 — a law that authorized incremental payment increases in the state's pension fund — a binding contract that could not have been voided without violating the U.S. Constitution's federal contracts clause.

The majority decision in that case, again penned by LaVecchia, noted that "the loss of public trust due to the broken promises made through Chapter 78's enactment is staggering."

New Jersey's pension funding problem is considered a bipartisan issue, as both Republican and Democratic governors in recent years have underfunded it by billions of dollars.

A ballot question during New Jersey's Tuesday primary election resulted in roughly 70 percent of state voters saying they would favor a constitutional amendment forcing New Jersey to contribute to the public pension fund.

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