New Jersey Court: Pension ARC Must Be Paid. Colorado PERA: Unnecessary.

Coverage of today's New Jersey Superior Court Decision:

"(New Jersey Governor) Christie has said the pension cuts (failure to pay public pension 'actuarially required contributions, ARC') were necessary to balance the state’s budget and that 'there are no alternatives' to such reductions. At the same time, he has backed record amounts of new corporate tax subsidies — some of which flowed to Republican campaign contributors. He has also vetoed legislation to increase taxes on income above $1 million. That legislation was projected to raise $1.1 billion, which proponents said would have allowed the state to make its required pension contribution."

http://coloradopols.com/diary/66484/colorado-pera-fiduciaries-severely-underfunded-but-see-no-problem

http://www.ibtimes.com/chris-christie-court-overturns-new-jersey-governors-pension-cuts-1825710

Today (2/23/2015), the Superior Court of New Jersey forced the State of New Jersey to abide by a recently enacted statutory requirement that public pension ARCs be paid. In Colorado, the issue of the payment of the Colorado PERA pension ARC isn't even on the table. Colorado PERA's Executive Director recently testified to the Colorado Joint Budget Committee that the PERA ARC need not be paid, i.e., he stated that, although the PERA ARC has not been paid for thirteen years in Colorado, and is not currently being paid, the PERA pension fund needs no additional contributions. As far as I can tell, Colorado PERA is the lone public pension system in the United States taking the position that public pension ARCs need not be paid. See the following article for Greg Smith's testimony:

http://coloradopols.com/diary/66484/colorado-pera-fiduciaries-severely-underfunded-but-see-no-problem

Link to the complete New Jersey court opinion:

http://www.judiciary.state.nj.us/pension_payment/FINAL%20decision%202-23-2015.pdf

A few interesting excerpts from the New Jersey Court's opinion:

"And, history has shown that the public pension system and its members routinely have been targeted by administrations of both parties when budget problems arise."

"See Berg v. Christie . . .describing a 'series of Executive and Legislative policy decisions' that 'resulted in underfunding of the pension systems' and deciding whether a legislative act suspending cost of living adjustments for current and future retirees violated the contract clause."

"Now, for the first time, Chapter 78 expressly provides that members of the public pension systems 'shall have a contractual right to the annual required contribution amount being made by the member’s employer or by any other public entity.'”

"The Legislature directed that the required contributions be made annually on a timely basis 'to help ensure that the retirement system is securely funded and that the retirement benefits to which the members are entitled by statute and in consideration for their public service and in compensation for their work will be paid upon retirement.'”

"Indeed, the Governor himself characterized this pension legislation as constituting 'historic reforms' that 'bring to an end years of broken promises and fiscal mismanagement by securing the long-term solvency of the pension and benefit systems.'”

"Under the statutory framework requiring employer contributions, the State is required to make an 'annually required contribution' (ARC) which is composed of the 'annual normal contribution' and the 'annual unfunded accrued actuarial liability contribution' (UAAL)."

"The State has failed to pay its full ARC every year from FY 1997 to 2012."

"The State’s continued failure to make the full ARC payment results in exponential growth in the UAAL through both lost contributions and lost expected return on the investment of the contributions."

"Courts in New Jersey have consistently viewed pension payments as a form of 'deferred compensation' that an employee earns for prior service. ('Deferred compensation benefits have been earned by an employee and are no longer considered a gratuity.”)

“Pension statutes should be liberally construed . . . because they represent deferred compensation for a government employee’s service.”

"Despite the broad reach of the doctrine of sovereign immunity, there are several exceptions to the doctrine. For example, the doctrine does not apply if a plaintiff seeks relief from state laws that violate the Federal Constitution."

"This court and the United States District Court for the District of New Jersey previously held in a similar suit brought by the NJEA, challenging Chapter 78’s suspension of the COLAs and seeking enforcement of plaintiffs’ contracts with the State, that these types of claims essentially seek specific performance of their contracts with the State."

"As these two decisions explain, actions seeking specific performance of a contract do not fall under Ex parte Young’s exception from the doctrine of sovereign immunity, largely because they seek retroactive, rather than prospective, relief."

"Notably, both the Federal and the State Contract Clauses speak of a violation of the Clause’s guarantee as an 'impairment.' Consequently, when the Legislature chose to use the term 'impairment' in Chapter 78, it did not intend to limit plaintiffs’ constitutional protections to the New Jersey State Constitution."

"Like any private party to a contract, then, the State may repudiate a contract, as long as it is willing to pay the damages resulting from the breach."

"Consequently, although plaintiffs’ Federal Contract Clause claims are not necessary to the outcome of this case, the court concludes that plaintiffs have properly asserted claims arising under the Federal Constitution, which support their parallel claims arising under the New Jersey Constitution."

"The court is unwilling to rely on what has now become a succession of empty promises. Defendants’ assertions about the health of the fund also do not take into account the fact that the State’s failure to make its payments in a timely fashion results in the loss of interest on the investment of money that otherwise should have been put into the pension funds. The continued failure to make timely payments therefore causes the unfunded liability to increase exponentially."

"Further, after a State binds itself in a contract, 'a State is not completely free to consider impairing the obligations of its own contracts on a par with other policy alternatives.U.S. Trust Co."

"Although a state’s asserted justifications for impairing private contractual obligations are typically given significant deference by the courts, less deference is accorded to a state in regard to public contracts because a state’s self-interest is at stake."

" . . . a contract impairment will be considered unreasonable if the State considered impairment of the contract right “on a par with other policy alternatives. U.S. Trust"

"The court cannot allow the State to simply turn its back on its obligations to New Jersey’s public employees–especially in light of the fact that the State’s failure to make its full payment constitutes a substantial blow to the solvency of the pension funds in violation of plaintiffs’ constitutional rights, and due to the fact that the terms of the UAAL payments were set forth–and even publicly endorsed–by the Governor himself."

"The complaints raise a number of other claims that were not argued by plaintiffs either in the moving briefs or in the reply briefs. For example, the complaints allege estoppel, unconstitutional taking, breach of the implied covenant of good faith and fair dealing . . ."

http://www.judiciary.state.nj.us/pension_payment/FINAL%20decision%202-23-2015.pdf

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