In New Jersey, a retired teacher, police officer or firefighter typically makes more in pension payments than the typical worker earns in regular wages each year.
And the state government that has liberalized pension benefits and local governments that regularly approve pay raises have failed to pay what is owed to pension funds. Taxpayers are liable for about $34 billion that has gone unfunded.
The public employee pension system in New Jersey needs fixing at a time when property taxpayers are looking for relief and the state budget is $8 billion in the red.
“Basically, we’re on track to have a pension train wreck,” said James Hughes, dean of the Bloustein School of Planning and Public Policy at Rutgers University.
Contending that the pension system is the “No. 1 reason property taxes are skyrocketing,” Bill Dressel, director of the New Jersey League of Municipalities, said the systems “are broken and they have got to be fixed.”
An analysis of the state pension programs and federal and state labor data by The Press of Atlantic City shows:
- The median pension payment for teachers in 2008 was $43,200. Police and fire fund retirees were paid a median $61,800, with State Police getting $81,700. Those retirees were paid far more than many workers in New Jersey, where the median annual wage in 2008 was $37,900, according to state and U.S. Bureau of Labor Statistics data.
- Some annual pension payments go well into the six figures. In September, 428 New Jersey government retirees from all levels were receiving pensions of $100,000 or more. Their ranks are growing. Nearly half of those pensioners — 46 percent — have only retired since Jan. 1, 2008.
- The tab for government pensions in New Jersey paid out this year is $5.7 billion and growing, state data show. The Consumer Price Index, a measure of inflation, was up 30 percent in the past 10 years. But the average government pension in the state increased by 43 percent.
Anger despite reforms
Gov. Jon S. Corzine, a lame duck, has established some reforms. He increased the minimum retirement age to 60 for new hires. He also capped the salary level on which pensions are calculated and increased what state workers pay into their pensions.
And Corzine made a larger state pension contribution than was made in the previous 14 years combined.
But with pension payments growing, with the private-sector base that pays for them shrinking, and with government retirees receiving lifetime health benefits, the pension system remains in crisis.
Polls, anecdotal evidence and recent election results suggest taxpayers are angry. In Ocean City, activist Michael Hinchman argued earlier this year that the city doesn’t need all 59 full-time police officers it employs. Hinchman, a financial consultant, says that high retirement costs are pegged to salaries.
After former Ocean City Police Chief Robert Blevin retired in April 2008 from a job that paid nearly $123,000, he began collecting an annual pension of $86,000, state records show. Forty-nine of the 50 highest pensions earned by city retirees are collected by former police officers or teachers, whose salaries make up the highest costs in local government.
Hinchman expressed frustration over benefits costs after The Press shared its findings with him. His civic group, Fairness in Taxes, failed to convince Ocean City Mayor Sal Perillo last May to cut positions. Since then, four Ocean City teachers retired, collecting pensions of $50,000 to $71,000. Three of the four had salaries exceeding $100,000 when they retired, and the fourth was paid $97,400.
“It’s unsustainable for the public sector to keep paying these large pensions. All you need to do is look at real estate taxes to understand why,” Hinchman said. “What it really means is the politicians have given it away to the future detriment of our communities.”
Public salaries up
In the past, public employees received high benefits to compensate for lower pay than the private sector received. But government salaries have increased. Press analysis, reported in March 2006, showed that more than three-quarters of state workers earned more than the median wage in New Jersey. And few private workers get the lifetime health benefits and pensions found in government work.
In the Northeast, the private sector offers pensions to about a quarter of its employees, according to the Bureau of Labor Statistics. But 89 percent of public employees are eligible for pensions. The typical government pension is double what private workers receive.
Many New Jersey public retirees don’t get excessive pensions. Members of the Public Employees Retirement System, which covers a little more than half of New Jersey government retirees, received a median 2008 pension of $19,500. That’s not far above the national standard for public employees.
Some top government officials in that fund retire to the $100,000-plus club. Robert Mulcahy, the former Rutgers University athletic director, receives the highest public pension in New Jersey. Records show that after he retired in February at a salary of $316,900, he began receiving a $161,000 pension.
Superior Court judges, who make at least $157,000 per year, retired last year with a median pension of $112,100.
But the vast majority of high pensions are earned by police/fire or teacher fund retirees. The highest pension collected in this region goes to former Atlantic City Police Chief Arthur Snellbaker, at $125,850. Former Atlantic City Fire Chief John Bereheiko collects $112,300, records show.
Pensions are calculated based on years of service and the highest salaries earned while working. Press analysis shows that teachers were typically paid $81,000 at retirement last year. Median police retiree salaries were more than $93,400 — and were $122,800 for state police.
Police and teacher union spokesmen said their members’ salaries and pension benefits are not excessive.
Rob Nixon, of the state Policemen’s Benevolent Association, said $100,000 salaries are in line with what others earn in the more affluent towns of northern New Jersey. He said the potential danger of police work justifies the cost.
“The state PBA’s feeling has been that law-enforcement officers are paid not for what they do, but for what they might be asked to do,” Nixon said.
Steve Wollmer, New Jersey Education Association spokesman, said the $60,000 average teacher’s salary is what college graduates would expect to earn in New Jersey. He said the annual raises of 3 to 5 percent that teachers have received are not much more than the inflation rate. He rejected the notion that teachers should forego negotiated raises or benefits because of the recession.
“If anyone thinks $40,000 is an extravagant pension, raise your hand,” Wollmer said. “It’s not.”
Nixon also urged against what Hinchman had recommended: cutting police slots to save money.
“The economic environment stinks all around and doesn’t leave anybody with good options,” Nixon said. “But the streets should be dirty before they’re unsafe.”
Dressel, of the municipalities league, and Hinchman questioned whether public salaries are still fair based on taxpayers’ ability to pay. Hughes noted that many private workers’ income has stagnated. Public worker salaries have steadily risen, even during the recession.
A police officer hired at 21 can retire after 24 years at half of his pay, Dressel said. At age 46, he can start a second career while collecting more in pension than most people earn working. Hinchman claimed politicians have protected the employee unions more than the public.
The union officials said government wouldn’t be struggling with pension costs if it had contributed to the funds all along. Former Gov. Jim Florio justified reducing state pension contributions by changing how the funds were valued. Former Gov. Christie Whitman raided the pensions’ reserve fund and allowed local governments to skip contributions — a practice that occurs to this day.
“The pension system is sustainable if government makes payments that are legally required,” Wollmer said. “We find ourselves in a tough situation, but not because benefits are too liberal.”
Public sector grows, private sector shrinks
Hughes, of Rutgers’ Bloustein School, noted that state officials loosened pension rules in 2001 to allow public employees to retire at age 55 instead of 60. That move was retroactive and increased benefit costs by 9 percent, Hughes said.
He said that although the pension system is in crisis, at least current employees are contributing to it — 5.5 percent of pay for most workers, 8.5 percent for police and fire. And the funds earn interest. But the recession has battered the pension accounts, which lost 30 percent of their former value while benefits kept growing, Hughes said.
Hughes cited one “really troubling” reason that the current situation may not be sustainable: the public sector is growing while the private sector that pays for the benefits is shrinking.
During the 1990s, New Jersey added 22 private sector jobs for every government job created. But this past decade, government jobs greatly expanded while the number of private jobs declined. New Jersey lost three private sector jobs for every two government jobs created, Hughes said.
Frank Belluscio, of the New Jersey School Boards Association, said any disparity between public and private salaries and benefits will probably fade as the economy improves. But he said the state must act to keep the pension system solvent. Any changes would have to affect future employees only, he said.
Belluscio and others said the state must review its policy of providing lifetime health benefits to retirees.
The state’s budget and pension problems will become Republican Chris Christie’s responsibility when he takes office in January. Christie refused to comment on the issues or The Press’ analysis. The police and teacher unions are waiting to see how he approaches the issues. They are preparing to defend their benefits.
“We’re in a state where the cost of living is one of the highest in the country,” Wollmer of the NJEA said. “”If people want to live in New Jersey, they need to have a pension where they can afford it.”
But even there, New Jersey taxpayers don’t get the benefit of all that pension money stimulating the state’s economy.
Press analysis shows that more than one of every four dollars spent on pensions is mailed to retirees living out of state. After earning a living funded by some of the highest taxes in the nation, nearly one out of three government retirees decide taxes here are too high. And they move out of New Jersey.
Contact John Froonjian: