The New Jersey Supreme Court on June 9 upheld a 2011 law that suspended cost-of-living adjustments for New Jersey Pension Fund retirees. The ruling reverses a 2014 ruling by a state appeals court against the measure.
The state Supreme Court ruled in Burgos v. State of New Jersey (A-55-14) (075736) that the language declaring that each member of the state’s pension systems has a contractual right to the annual required contribution amount “does not create a legally enforceable contract that is entitled to constitutional protection.” The court said, “The Debt Limitation Clause of the State Constitution interdicts the creation, in this manner, of a legally binding enforceable contract compelling multi-year financial payments in the sizable amounts called for by the statute.”
The court acknowledged the plaintiffs’ concerns, but said that there was more than that at stake: “Because of the importance of maintaining the soundness of the pension funds, the loss of public trust due to the broken promises made though Chapter 78’s enactment is staggering. We recognize that the present level of the pension systems’ funding is of increasing concern, as does the dissent. But this constitutional controversy has been brought to the Judiciary’s doorstep, and our obligation is to enforce the State Constitution’s limitations on legislative power.”
And ultimately, the court said, it is up to the other branches of the state government to work together to resolve the matter: “That the State must get its financial house in order is plain. The need is compelling in respect of the State’s ability to honor its compensation commitment to retired employees. But this Court cannot resolve that need in place of the political branches. They will have to deal with one another to forge a solution to the tenuous financial status of New Jersey’s pension funding in a way that comports with the strictures of our Constitution.”
The public employee unions and state retirees who brought suit may not be pleased by the state Supreme Court’s holding, but Moody’s likely will be. The rating agency had warned earlier this year that that if the court invalidated the freeze and the state and municipal governments have to restore COLAs, the New Jersey pension system’s $55 billion unfunded liability would increase by one-third.
The state Supreme Court ruled in Burgos v. State of New Jersey (A-55-14) (075736) that the language declaring that each member of the state’s pension systems has a contractual right to the annual required contribution amount “does not create a legally enforceable contract that is entitled to constitutional protection.” The court said, “The Debt Limitation Clause of the State Constitution interdicts the creation, in this manner, of a legally binding enforceable contract compelling multi-year financial payments in the sizable amounts called for by the statute.”
The court acknowledged the plaintiffs’ concerns, but said that there was more than that at stake: “Because of the importance of maintaining the soundness of the pension funds, the loss of public trust due to the broken promises made though Chapter 78’s enactment is staggering. We recognize that the present level of the pension systems’ funding is of increasing concern, as does the dissent. But this constitutional controversy has been brought to the Judiciary’s doorstep, and our obligation is to enforce the State Constitution’s limitations on legislative power.”
And ultimately, the court said, it is up to the other branches of the state government to work together to resolve the matter: “That the State must get its financial house in order is plain. The need is compelling in respect of the State’s ability to honor its compensation commitment to retired employees. But this Court cannot resolve that need in place of the political branches. They will have to deal with one another to forge a solution to the tenuous financial status of New Jersey’s pension funding in a way that comports with the strictures of our Constitution.”
The public employee unions and state retirees who brought suit may not be pleased by the state Supreme Court’s holding, but Moody’s likely will be. The rating agency had warned earlier this year that that if the court invalidated the freeze and the state and municipal governments have to restore COLAs, the New Jersey pension system’s $55 billion unfunded liability would increase by one-third.
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