New Jersey public servants may have law on their side in pension battle

In addition, a letter that same week from the state Legislature’s legal counsel bluntly states that the right to benefits for anyone who has completed five years of service “cannot be reduced.”

“[L]egislation that has the effect of detrimentally altering the retirement benefits of active members of State-administered retirement systems who have accrued at least five years of service credit, or of retired members, would be unconstitutional as violative of the federal and State constitutional proscription against impairment of the obligation of contracts,” the letter to the Joint Legislative Committee on Public Employee Benefits Reform says.

So even if Christie does convince the Legislature to accept his reforms, a court could overrule any attempts to “substantially impair” pensions for those public servants who’ve already put in five years, according to Assistant Attorney General John P. Bender, who prepared the advisory letter for Farber.

The state would then have to show it had a “significant and legitimate purpose” — and, more importantly, that lawmakers basically had no other choice, it says.

“[A] court will look to whether the legislative objectives could have been achieved by a less drastic alternative, including one that does not impair contractual rights,” New Jersey case law states.

“The more substantial the impairment, the greater the level of scrutiny to which the law will be subjected,” it adds. “[T]he courts will not simply allow the State to walk away from its financial obligations.”

Farber’s letter cites “the well established treatment of pension laws by New Jersey courts.” These traditionally have been decided “most favorably to the employee’s interests.”

While the law automatically vests anyone with 10 years of “creditable” service, “the extent of the non-forfeiable benefits for individual employees is determined not at the time of vesting but with reference to the benefits provided by law for that pension system when the employee accrued 5 years of service credit… but have not yet vested.”

Those with less than five years aren’t totally out of luck. Farber’s letter points out that a court could reject pension cuts for that group if they “result in large tax liabilities for the trusts and the plan members.”

Lawmakers can still “alter, modify or amend” the pension system, the advisory letter says. The current pension law in New Jersey also doesn’t apply to post-retirement medical benefits, it notes.

“Pensions for public employees serve a public purpose,” wrote Albert Porroni, then the state Legislative Counsel.

“It is common knowledge that a pension is an element in encouraging qualified individuals to enter and remain in public service,” Porroni quotes from state law, adding: “Deferred compensation benefits have been earned by an employee and are no longer considered a gratuity.”

By reducing pension benefits for those who already, under state law, are protected “would be impermissably impairing the obligation of a contract to which it is a party,” Porroni’s letter says.

When state legislators enaced the law, they “did not reserve the right to unilaterally adopt substantial modifications of the pension program,” it adds. “More modest means of saving or raising money are available to the State that do not affect contractual obligations.”