Sweeney urges federal loan to fix N.J. pension woes

New Jersey Senate President Stephen Sweeney said Wednesday that the federal government should provide low-interest loans to states struggling to pay down their pension obligations, the latest proposal to shore up benefits for public workers.

Sweeney (D., Gloucester), who wants a $50 billion loan for New Jersey with an interest rate of 1 percent to 2 percent, said the federal program would help states and local governments with underfunded pension liabilities restore their retirement systems to fiscal health.

Gov. Christie's office said that would not address the fundamental problem that public employees earn far more in pension and health benefits than they contribute. And a conservative actuary said the plan amounted to seeking a federal bailout, a term Sweeney rejected.

Sweeney cited a report released this month by the Pew Charitable Trusts that found that state-run retirement systems had a $1 trillion gap in 2013 between what states owed workers and how much money was available to meet those obligations.

"Pension responsibilities have become a financial crisis for states throughout the country, with mounting debts and underfunded obligations that are growing beyond the reach of state budgets," Sweeney said in a statement. "This program would be more affordable for the states."

Voters would have to approve a constitutional amendment guaranteeing repayment of the federal loan over 30 years, as well as an amendment requiring the state to make its actuarially recommended contribution in future years.

The Pew report said New Jersey's combined state and local unfunded liability was $51 billion in fiscal 2013. The New Jersey Department of Treasury says the state's current unfunded liability is $40 billion.

Nicole Sizemore, a spokeswoman for Christie, a Republican, said a member of the New Jersey Education Association "retiring in just a few years contributes just $126,000 to their pension and health benefit costs over 30 years and takes out $2.4 million in benefits."

"The math does not work at all. That is the fundamental problem that needs to be solved."

In February, Christie proposed paring back public employees' health benefits to pay down the unfunded pension liability. He also wanted to transfer control of the pension funds to trusts controlled by the unions, and move away from a defined-benefit plan.

That plan gained no traction in the Democratic-controlled Legislature or among public-sector unions, which sued Christie last year after he slashed contributions to the pension system, violating a 2011 law that required bigger payments.

The state Supreme Court ruled in May that Christie was not required to make the full payment because of a clause in the constitution that prohibits one legislature from creating debts for future ones.

Wendell Steinhauer, president of the NJEA, said Sweeney's approach "deserves a very close look because of its potential to lower costs for New Jersey taxpayers while making workers' pensions more secure."

Rick Dreyfuss, an actuary and adjunct fellow at the conservative Manhattan Institute, said Sweeney's plan was "effectively a bailout" and not the answer to New Jersey's pension problems.

"What happens if New Jersey doesn't repay the federal government?" Dreyfuss said. "What are they going to do, take over the State of New Jersey?"

New Jersey floated pension bonds under Gov. Christie Whitman and is still paying off that debt.

"I can't point to one example of where pension obligations have successfully worked in the long term with regard to leveraging," or borrowing, at a low interest rate in the hope of investing the money and making a greater return, Dreyfuss said. New Jersey's assumed rate of return on its pension investments is 7.9 percent, a figure many say is unrealistically high.

"What happens if they earn minus-7.9 percent?" Dreyfuss said.