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

Categories: National Developments,OPEB/GASB 45/75
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NJ Spotlight by Mark Magyar,  May 29, 2014

New Jersey will be paying just $2.4 billion of the $8.8 billion actuaries say the state should allocate for pensions and retiree health benefit costs in the revised budget Gov. Chris Christie has proposed for next year — a policy decision that exacerbates the state’s long-term fiscal crisis and sticks future taxpayers with the bill.

While most of the focus in Christie’s first five years in office has been on the state’s pension crisis, paying for retiree health benefits poses a similarly difficult fiscal challenge. In fact, the state will be paying $1.7 billion next year to cover the healthcare benefits of retired teachers and state government workers — who get free healthcare for life if they retire after 25 years — compared to just $681 million toward pension costs in the wake of Christie’s pension cuts.

“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. “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.

“And 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,” said Rousseau, who currently serves as budget and tax analyst for New Jersey Policy Perspective.

In fact, the state government’s unfunded liability for retiree healthcare benefits stood at $51.5 billion as of last July 1, compared to $37 billion for teacher and state government pensions. And while Christie and the Democratic-controlled Legislature agreed in 2010 to a seven-year ramp-up to actuarially required funding of the pension system by FY18, there are no plans to pay down the unfunded liability for retiree healthcare benefits, which will continue to grow by several billion dollars a year.

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