The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey

Across the country, state public sector pensions are underfunded by as much as $3 trillion. In New Jersey alone, the state's five defined benefit plans are underfunded by an estimated $173 billion, the equivalent of the next five years of state spending combined. State actuaries estimate New Jersey’s pension plans will begin to run out of money to pay benefits in 2013.

Policy makers in Trenton and in capitals around the country have been loath to take on the root of the problem: unrealistic assumptions about returns that have created a fiscal time bomb for the states. Only significant reform can circumvent the pending meltdown.

In The Crisis in Public Sector Pension Plans: A Blueprint for Reform in New Jersey, Eileen Norcross and Andrew Biggs suggest a menu of options for New Jersey and other state policy makers -- and project the costs of doing nothing.



Specifically, the paper recommends that policy makers:



• Extend the defined contribution plan already available to state university faculty and staff and the state's Defined Contribution Retirement Program to all state employees.

• Reduce or freeze cost of living adjustments (COLAs) to reduce the state's unfunded liability.

• Transition non-vested workers to defined contribution plans.



Many states face underfunded public sector pensions, and the hole that New Jersey has dug for itself is one of the worst. This paper represents a step forward in understanding how state policy makers can address public pension reform in a meaningful, sustainable, and honest fashion.



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