Big public pension battle to hit N.J. Supreme Court on March 14

TRENTON -- The state Supreme Court will hear oral arguments later this month in a case addressing whether the state must restore retired public workers' cost-of-living adjustments.

Retirees argue that a state law freezing their COLAs ran afoul of their rights to their pension benefits. The state's high court is scheduled to hear arguments at 10 a.m. March 14. The outcome could wipe out tens of billions of dollars lawmakers expected to save the pension system over three decades.

This is the second major public pension case to hit the state Supreme Court in as many years. Both cases stem from a broad set of pension reforms designed to put the distressed pension system for government workers on better footing.

On the employee side, it raised the retirement age, required workers to pay more for their benefits, and suspended COLAs until the pension plans hit certain funding ratio benchmarks. For its part, the state was supposed to follow a payment plan to contribute more into the system.

All together, those changes were to save the state $122 billion over 30 years, and the COLA suspension accounted for more than half of those savings.

Senate President Stephen Sweeney, who partnered with Christie on the 5-year-old reforms, has said losing the case and being forced to restore the increases and reimburse retirees could cripple the already shaky system.

Moody's Investors Service weighed in in January, saying that the state portion of the total unfunded pension liability would increase from $40 billion to about $53 billion, and the system would fall from 51 percent funded to 44 percent funded if the court strikes down the freeze.

"The heightened burden, combined with an increase in benefit costs, would hurt New Jersey's pension fund cash flows and funded status and the state's ability to reach structural budget balance," Moody's said.

This year's annual required contribution, which the state does not historically pay in full, would increase from $4.4 billion to $5.7 billion. It could also move up the depletion dates for the pension funds, two of which are estimated to go broke by 2027.

Charles Ouslander, a plaintiff in the case, has disagreed with Sweeney's prognosis that a win for the workers will bankrupt the system.

"I do think it it will deplete the fund that much sooner, and frankly if that provides a sense of urgency as to how they're going to fix the funding problem, then so be it. This should light a fire under everyone," he has said.

Ouslander was among the more than two dozen retired government attorneys who sued the state in 2011, arguing the freeze violated their statutory non-forfeitable right to pension benefits that was granted workers in 1997 under then-Gov. Christie Whitman. Labor unions later joined the suit.

The retirees lost at the trial court level after the judge found that, based on a clause that gives lawmakers and governors discretion over annual state spending, the state could not be forced to pay the increases. The appellate panel disagreed, saying "pensions are neither funded by appropriations on a pay-as-you-go basis... nor is their payment contingent on the making of a current appropriation."

The state continued to pay out COLAs for years even as it skipped and underfunded pension payments.

The Supreme Court in July agreed to hear the case.

Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.

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