New Jersey has a gaping $3 billion hole in pension funding. But there’s more at stake than just finances. Undergirding New Jersey’s deepening pension hole is a system that disadvantages the majority of its teachers.
Last week the newly formed bipartisan New Jersey pension commission issued a report, detailing grim numbers on escalating benefits costs. Missing from the report, however, was how the current system impacts the workforce.
For teachers (who make up over 60 percent of workers covered by New Jersey’s state pension plans) the current pension system disproportionately allocates benefits. Close to half of New Jersey teachers won’t qualify for a minimum pension. That means, for the 153,500 teachers currently in the system, nearly 70,000 won’t receive any retirement benefits despite paying into the pension system. Of the remainder who do qualify, many won’t break even according to an Urban Institute report and will end up contributing more towards the system than what they will get back in benefits, losing money.
In crafting their proposal, the Commission needs to consider the impact that policy changes will have on individual teachers and the teaching workforce as a whole. Teachers need a flexible yet secure retirement plan. A well-designed 401k plan can address these problems, but a poorly designed one could just as easily fail teachers. Also, there are other alternatives. A smooth-accrual defined benefit or cash-balance plan is another viable design that can be fiscally sound while making sure teachers have sufficient benefits and rewarding them for their service.
By focusing only on finances, the Commission is missing a key opportunity to create a more fair system and opens the door for a misaligned solution. The answer can’t just be cut benefits—New Jersey needs to restructure and rethink the overall design of its retirement system to make it better for all workers.