Garden State Crowd-Out: How New Jersey’s Pension Crisis Threatens the State Budget

Steven Malanga and Josh McGee
Publication Date: 
January 2018

New Jersey’s pension systems are some of the worst-funded in the United States. The Rockefeller Institute of Government at the State University of New York classifies a government pension system that is below 40 percent funded as in "crisis.” New Jersey’s system is well below that mark. A combination of elected officials granting retirement benefits to workers without having the means for them and public-employee groups negotiating increased benefits when there was no funding source led to this situation.

New Jersey’s pension system is a defined-benefit pension plan. Pension systems calculate benefits through a predetermined formula based on a workers’ years of service and earnings history. Over the years, New Jersey continued to contribute less than what was needed to fund the pension system and decrease its growing debt. This report focuses on New Jersey’s funding problems. In 2014, the state created the New Jersey Pension and Health Benefit Study Commission (NJPHBSC) to offer recommendations for reforms.  The NJPHBSC proposed a range of changes to assist in the relief of the pension crisis and budget problems: replacing the defined-benefit plan to a cash-balance pension plan, reducing the cost of health-benefit plans, and redirecting some resulting savings to paying off the debt. However, the public-sector unions and key Democratic lawmakers have been resistant to these suggestions. 

After almost a decade-long expansion, if America’s economy suffers another recession, recovery for New Jersey’s pension system will be nearly impossible. New Jersey needs to construct a feasible and lasting plan for the pension system or else the consequences may be irreparable.