N.J. high court to hear new challenge to pension law

The New Jersey Supreme Court has agreed to hear a challenge to a 2011 law that suspended retirees' cost-of-living adjustments as part of an overhaul of the pension system for public workers.

That same law was recently scrutinized in a high-profile case, in which the court struck down a provision granting public workers a contractual right to pension funding.

Public-sector unions had argued that Gov. Christie violated workers' constitutional rights by underfunding the pension system last fiscal year. The law raised the retirement age and required public employees to contribute more toward their pensions and health benefits.

In return, the state was supposed to phase in bigger contributions to the pension system over seven years.

Where the unions' lawsuit sought to ensure that Christie complied with the law he signed, the new plaintiffs, along with the New Jersey Education Association, want the Supreme Court to strike down a core provision of the law, which the governor has said would save taxpayers $130 billion over 30 years. The Christie administration, too, argued in favor of having the issue decided by the high court, expediting the matter.

Freezing the cost-of-living adjustments reduced the pension system's unfunded liability by $11.5 billion, according to a Christie-appointed commission. Under the 2011 law, the COLAs can be reinstated once the pension system returns to fiscal health.

The unfunded liability currently stands at $40 billion, and the commission projected that some of the pension funds would run out of money within the next 10 to 12 years without changes to the plan design and funding requirements.

In 2011, 26 retired government attorneys sued Christie and the state, alleging that the freezing of COLAs violated their contractual rights established by a 1997 law.

That law granted public workers a nonforfeitable right to basic pension benefits when they retire.

A judge dismissed the suit in 2012, but last year an appellate court reversed the decision and found that the 1997 law created a contractual right.

"The issue in this case is whether, in enacting the nonforfeitable rights clause, the Legislature intended that cost of living increases be included in that contractual right," the appellate court wrote. After reviewing the legislative record, the court said that COLAs were included in public workers' contractual rights.

The appellate court remanded the issue to a lower court, but the Supreme Court now says it will review the matter.

Contracts are protected by the state and federal constitutions. However, the New Jersey courts have ruled that the state can breach contracts if it proves that doing so is reasonable and necessary.