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NJ Digs Deeper Hole by Paying Just $2.4B of $8.8B of Retiree Costs

Wednesday, July 2, 2014   (0 Comments)
Posted by: Greg Mayers
Share | 5/29/14

Retiree health benefits make up the lion’s share of the state’s $90 billion unfunded liability. Actuaries say the state should allocate $8.8 billion for pensions and retiree health benefit costs in the proposed budget for next year, although it only allocates for $2.4 billion. Governor Christie’s first five years in office focused on the pension crisis, there had not been too much focus on paying for retiree health benefits. The state will be paying $1.7 billion next year towards healthcare benefits of retired teachers and government workers -- who get free healthcare for life if they retire after 25 years -- compared to $681 million toward pension costs.

“What people don’t realize is that retiree health benefits are a bigger long-term liability than pensions,” said David Rousseau, a former Democratic state treasurer, and currently serves as budget and tax analyst for New Jersey Policy Perspective. He goes on to explain that, “the actuarial cost we should be putting away for retiree healthcare benefits is $4.7 billion, compared to only $3.9 billion for pensions,” in order to cover both current costs and amortization of the unfunded liability. Rousseau continues to explain that “…while we at least have a plan to phase up pension payments to the proper level (to pay down the unfunded liability), we’re not even starting to put a dent in the health benefits side because we pay for retiree health benefits on a pay-as-you-go basis.”

It is the growing cost of New Jersey’s retiree health benefit program -- not its pension system -- that makes the Garden State out-of-step with other states, according to national studies. New Jersey’ liability for retiree healthcare benefits is by far the largest among the 50 states, the state’s pension liability for state and local governments dropped to 11th in the nation as a percentage of its annual state budget -- far below Illinois and Connecticut -- after Christie and Senate President Stephen Sweeney (D-Gloucester) teamed up to pass the 2011 pension and health benefits overhaul.

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