Three pension funds suing New Jersey for breach of contract, seeking billions in damages

Claim government contributed less than planned
By Geoff Mulvihill / The Associated Press
|payroll-reporter.com|Last Updated: 07/28/2015

NEW JERSEY (AP) — Three public workers' pension funds are suing New Jersey for billions in damages, claiming the state government breached contracts when it contributed less than planned.

The filing Friday is the latest volley in a more than yearlong dispute over pension contributions. They stem from Gov. Chris Christie's decision last year amid a budget shortfall to veer from a pension funding plan he signed into law in 2011.

The following is a look at the saga, which is a major political and financial issue in New Jersey for Christie, who is seeking the 2016 Republican presidential nomination.

THE DEAL

One of Christie's major accomplishments in his early years as governor was agreeing to a plan to put public employees' pension on more solid ground. The funds were in bad shape mostly because governors from both parties had made smaller payments than required - or skipped them entirely - for two decades.

Under the plan signed by Christie, workers would have to contribute more and would see some benefits trimmed while the state would make up the funding shortfall over seven years of increasing payments.

THE DEAL'S UNDOING

Last year, New Jersey had a surprise revenue shortfall and Christie balanced the books almost entirely by reducing pension contributions. Unions sued, arguing the state had a contract with them to pay up. In June, the state Supreme Court ruled on the issue. It found that it could not order the administration to make the full pension payments, largely because doing so would violate a provision of the state constitution that blocks the current Legislature from saddling future ones with debt.

The court made it clear, however, that the state is still responsible for fulfilling its pension promises to workers.

THE FUNDS' FILING

The state's three largest public worker pension funds — the Public Employees' Retirement System, the Teachers' Pension and Annuity Fund, and the Police and Firemen's Retirement System — had already been suing the state. But last week, they amended their argument in response to the Supreme Court ruling in the unions' suit.

The new argument is that the court was looking at the earlier pension deal the wrong way. To fulfil the 2011 agreement, the state would have had to have put about a total of about US$3 billion this budget year into pension funds — that amounts to nearly 10 per cent of the entire state budget.

The percentage is significant because the debt-limitation clause of the state constitution caps the debt that the Legislature can create without a public referendum at 1 per cent of the state budget each year.

The funds argue that the promise to each fund should be seen as separate deals each year. That way, some of the funds would come in at less than 1 per cent of the state budget.

WHAT THE FUNDS WANT

Tom Bruno, the chairman of the Public Employees' Retirement System, said a ruling in its favour would establish pension funding as a priority. "We want a judgment answered so we are to the front of the line getting our money before anyone else gets it, because it is our money,'' he said Monday.

THE GOVERNOR'S RESPONSE

Brian Murray, a spokesman for Christie, said the state's Supreme Court already has decided the issue, and that the current system doesn't work because teachers get far more in benefits than they pay into the system.

"The math simply does not work,'' Murray said. "It is now time to move beyond lawsuits to find a tangible, long-term solution to this problem.''

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