By Carly Sitrin
12/09/2020 05:00 AM EST
Leadership of New Jersey’s largest teachers union has a stronger, better-funded pension plan than the one in which their members are enrolled, even as New Jersey’s teacher pension crisis continues to worsen, according to a new report.
The report by Mike Lilley, head of the Sunlight Policy Center and an outspoken critic of the New Jersey Education Association, notes the pension plan for those who work for the union is “vastly superior.” The plan, the report states, is fully funded and offers better salary contribution rates, a better retirement threshold and better cost-of-living adjustments than the Teachers’ Pension and Annuity Fund for NJEA members, which is partially funded by the state and is on the brink of collapse.
Lilley said the differences between the plans are “jaw-dropping.”
“Teachers need to know this and need to demand better,” he said in an interview. “They don’t realize what a bad deal they’re getting. … Teachers pensions are inferior and at risk.”
NJEA officials did not respond to texts and emails seeking comment, but spokesperson Steven Baker has called Lilley’s past research “anti-union propaganda“ and has told POLITICO the union sees no benefit in “engaging with his misleading, agenda-driven ‘reports.‘”
The NJEA represents more than 200,000 members; the pension plan for full-time union employees covers 230 “active participants,” according to IRS documents.
POLITICO reviewed the NJEA Employees’ Retirement Trust Fund IRS Form 5500 documents from 2018 — the most recent year available — which Lilley cited in his report, and found several key differences between the two pension plans.
The NJEA employee plan is more than fully funded at 137 percent, meaning $1.37 is set aside for each $1 owed to employees. TPAF is underfunded at 27 percent, meaning just 27 cents is set aside for each $1 owed to teachers.
Both plans are what’s known as a “defined benefit plan,” which means the NJEA guarantees the payout of pension benefits, just as the state does for TPAF. However, because the NJEA is a private entity, its pension plan is subject to the federal Employee Retirement Income Security Act, which requires that pension plans be adequately funded. TPAF is not subject to ERISA rules.
Contributions are also different. New Jersey teachers must contribute 7.5 percent of their annual salaries to their pensions, while NJEA employees contribute 3.5 percent. For his report, Lilley calculated that a typical teacher would contribute $5,148 annually into TPAF, or $2,746 more than a comparable NJEA employee, for, as the report states, “a greatly inferior pension plan.”
Timelines for pension qualification and retirement also differ. Teachers covered by TPAF must work for 10 years before they are “vested” or qualify for their pension plan. NJEA employees only need to complete five years of service to be vested.
Under TPAF, the retirement age for teachers is 65, while NJEA employees can retire at 62. There is an early retirement option, but that varies. Under TPAF, a teacher with at least 30 years of service may retire early, but if they’re younger than 65, their pension benefit will be reduced by 3 percent for every year until they turn 65. An NJEA employee with 20 years’ service can retire early at age 55 without a penalty.
The NJEA employee plan also provides a 2.5 percent annual cost of living adjustment, whereas teachers enrolled in the TPAF plan don’t get that adjustment.
Lilley said the difference in plans is significant because teachers’ pensions are in danger. Absent some sort of federal bailout, he said, TPAF is at risk of insolvency.
According to TPAF’s most recent actuarial report and an update from the NJEA, as of 2019, TPAF was funded at 40.3 percent, which takes into account the ratio of assets the plan currently has to the projected benefit payments members have earned.
But the Sunlight Policy Center report and the actuarial report also note that TPAF’s assets were on a steep decline from 2014 to 2019 as more teachers were retiring. And as those retirees generally are living longer, the amount of pension benefits paid out annually continues to increase.
Noting the volatility of such assets, the most recent Government Accounting Standards Board report calculates TPAF’s funding at 27 percent.
Covid-19, Lilley said, is expected to speed up TPAF’s deterioration as more teachers hesitant to return to the classroom amid the pandemic have retired or left the profession.
The Center for Retirement Research at Boston College and the New Jersey Pension and Health Benefit Study Commission both calculated TPAF is likely to run out of assets entirely by 2027.
If TPAF were to become insolvent, the more than $4.5 billion in annual benefit payments would have to come out of the state budget every year — a steep demand for a state that just authorized up to $9.9 billion in borrowing as revenues continue to plunge in the wake of the coronavirus pandemic.
The teacher pension crisis is no secret in New Jersey. The overall state pension system is consistently among the worst-funded in the nation. The NJEA places that burden at the feet of the state.
“Employees have always made their full contribution to the pension system. In contrast, the state has not been making the full payment, and in most years, the contribution has been drastically lower than the required contribution,” Sarah Favinger, associate director in the NJEA Research and Economic Services Division, wrote in a recent update to union members.
The union points to the 2010 and 2011 pension reforms enacted under former Gov. Chris Christie and spearheaded by Senate President Steve Sweeney that increased teacher contribution rates, raised the retirement age, increased early retirement penalties, eliminated the cost of living annual adjustments and repealed teachers’ nonforfeitable right to pensions, meaning teachers hired after 2010 can have their future benefits reduced.
The NJEA — one of Gov. Phil Murphy’s strongest political allies — has said Murphy is committed to funding the teachers’ pension system and by 2023, the state is expected to make the full pension contribution.
“Once the state gets to the full payment, the pension system will begin to recover,” Favinger wrote.
But Lilley said that by having two separate plans — one for NJEA employees and leadership, and another for members — the union tacitly acknowledges what a gold-standard pension plan should look like — and it’s not TPAF.
“They want to blame it all on the state,” Lilley said. “They are the most powerful special interest in the state, they wield tremendous influence and they didn’t use it to secure members pensions. … Its just unconscionable to me that they would allow this to happen.”
To view online:
You received this POLITICO Pro content because your customized settings include: U.S. State Legislatures (and) New Jersey, State and Local Funds (and) New Jersey, Employment (and) New Jersey, Benefits and Retirement Plans (and) New Jersey, Labor and Management Relations (and) New…, Governors (and) New Jersey, Teachers and Administrators (and) New Jersey. To change your alert settings, please go to subscriber.politicopro.com/settings.