- NJ teachers get Social Security, not all teachers do.
- NJ teacher pensions are based on very high salaries.
- NJ teachers get post-retirement healthcare, not all retired teachers do.
- NJ teacher pensions are untaxed.
- The pension reports use interstate comparisons between public employee pensions in New Jersey versus public employee pensions in other states to say that NJ's pensions are ungenerous. There is no attempt to compare NJ public employee pensions with private sector pensions (which are usually not DB plans).
- The teacher salary reports use intrastate salary comparisons between NJ teachers versus other NJ workers with bachelors degrees. There is no attempt to compare NJ teacher salaries with salaries of teachers in other states (which are lower all but three states).
- In comparing pensions based on what percentage of final salary a retiree receives, Herzenberg and the NJPP compare New Jersey to all other states and non-teacher pension plans.
- In comparing pensions on the dollar amount of the pension, Herzenberg and the NJPP compare New Jersey to only seven other high-cost states, Vermont, Alaska, Maryland, New York, Connecticut, California, and Massachusetts.
In December 2017, New Jersey Policy Perspective released a brief on pensions that compared New Jersey’s system with those in other states, and it found that the Normal Cost of TPAF was average — 35th out of the 69 pension systems they compared it to. Meanwhile, New Jersey’s other main pension fund, the Public Employees’ Retirement System (PERS), was even cheaper. Its Normal Cost is equivalent to 2.4 percent of salary, the 13th lowest rate of these 69 pension systems.
The answer to our problem is not to further reform the pension system. Public employees have already seen their contributions increase to 7.5 percent of their salary. Meanwhile, the headline of NJPP’s brief was, “New Jersey Public Pensions Rank Among Least Generous in the Nation,” so it’s not like there’s any room left to cut benefits.Mark Weber also uncritically cited the reports in his 2019 and 2020 reports claiming that NJ's teachers were underpaid.
In 2014, an NJPP analysis found: “…New Jersey ranks 95th in pension generosity among the country’s 100 largest plans.” 40 The ranking was based on the fact the New Jersey pensions have relatively low multipliers – the percentage by which the state calculates pension payments per years of service – as well as no protection for inflation and higher employee contributions than two-thirds of the other plans surveyed. In addition, a 2017 survey of teacher pensions across states found New Jersey’s vesting requirement of 10 years to be among the highest in the nation
The NJPP's Claims are Based on Three Factors OnlyThe Herzenberg/NJPP claim is a judgment only of pensions after the post-Chapter 78 reforms, which have not yet begun to effect the majority of teachers and retirees since most NJ teachers and retirees worked before 2011.
Quoting from the 2014 report:
- New Jersey retirees have no automatic protection against inflation. While 69 of the 100 largest plans offer retirees some inflation protection, cost-of-living adjustments for New Jersey retirees were suspended indefinitely by the 2011 legislative pension reforms.
- New Jersey uses a very low multiplier. The percentage by which New Jersey calculates state pensions per year of service – known as the multiplier – is among the lowest nationally, at 1.67 percent. This means pensions benefits equal 1.67 percent of final salary multiplied by the number of years of service; 1.67 percent is a lower multiplier than all but 21 of the 100 plans. New Jersey lowered the multiplier from 1.81 percent in 2011.
- New Jersey employees pay more into the system than those in most other systems. New Jersey public employees contribute 6.93 percent of their salaries to their own pensions, more than 55 other plans in the top 100. By 2018, the employee contribution level for New Jersey pensions will rise to 7.5 percent, which is more than employees contribute today in about two-thirds of the top 100 plans.
States where no teachers are eligible for Social Security are Alaska, California, Colorado, Connecticut, Illinois, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, and Texas.
Recall that Steven Herzenberg/NJPP directly compares NJ's pensions to other high cost states. Of the high cost states Herzenberg/NJPP cites that have better pensions, only New York gives teachers Social Security. Connecticut, California, and Massachusetts do NOT.
By contrast, all New Jersey teachers receive Social Security, so if you factor in Social Security costs alone, New Jersey's pension costs per teacher are solidly in the middle of the country (see graph below).
- 1.67% of $79,906 equates to $1334 per year of teaching.
- 1.81% of $64,545 equates to $1168 per year of teaching.
The NJPP/Herzenberg also left Post-Retirement Healthcare out of their reports, even though $1 billion annual expense made by the state on behalf of teachers.
Note: New Jersey's post-retirement healthcare was only created in 1987 and is an underdiscussed cause of the pension underfunding that began in the 1990s. Originally, post-retirement healthcare was paid by a surplus in TPAF and was part of the state's Actuarially Recommended pension payment, but New Jersey abandoned any pretense of pre-funding in the mid-1990s. Since then, New Jersey's post-retirement healthcare has been PAYGO.
Although this was irresponsible of New Jersey, post-retirement healthcare is PAYGO in most states.
Although NJ teachers must work 25 years to receive any post-retirement healthcare (80% of people who ever teach will never receive this benefit), it is also a large expense, $1.0 billion for FY2020, or 6.3% of the all-in the State government's education spending. Post-2011 retirees pay a percentage of health benefits cost.
NJ Pensions Are Tax-Free
Finally, taxes have to be factored in, since some states claw back some of their pensions in the form of income taxes.
Since 2016's Transportation Trust Fund deal, NJ's pension income has been tax-free: up to $100,000 for married couples, $75,000 for individuals, and $50,000 for married couples filing separately. NJ's exemption thresholds are high enough to exempt nearly all teacher pensions in New Jersey. In most other states pension income is either fully taxable or the exemption is much lower than what it is in New Jersey.
In several of the pension funds that Herzenberg and the NJPP rank higher than New Jersey (California and Massachusetts), pensions are fully taxable.
The state income taxes that retirees would pay aren't as large as post-retirement healthcare and Social Security, but they aren't trivial either. For a New York retiree with a $50,000 annual pension, state income taxes are $1,079, even after the $20,000 exemption. The $1,079 is 1.3% of the average teacher's salary.
NJ's pensions are but one part of a comprehensive system of benefits for retirees. Saying that NJ's pensions are "among the least generous" in the United States is untrue, because pensions aren't the only benefit retirees get, and those pensions are calculated off of high-salaries and are tax-free.
It's also another reason the NJPP's claims to be a "think tank" shouldn't be taken seriously. It's a PR firm.
It's bad enough that the NJPP/Herzenberg produce highly misleading research and that teachers like Mark Weber and Brian Rock uncritically believe it, but so do some sources that purport to be more objective.
Of the 100 largest public pension plans in the country, we rank 95th, according to a careful study by New Jersey Policy Perspective, a liberal think-tank with the motto "Facts Matter."The acceptance of such biased research as accurate calls into light the NJ media's failure to find disinterested, objective opinions.
The study found that the average pension benefit for public workers is $26,000. The formula used to calculate those benefits is among the stingiest in the nation.
Keep in mind, too, that the bipartisan 2011 pension reform signed by Gov. Chris Christie eliminated cost-of-living adjustments, even for current retirees. So in each year of retirement, public workers see their real pension income drop.
- "Can New Jersey Increase Teacher Salaries? Should it? A response to Mark Weber and the NJPP"
- "The Economy and Abbott: What the NJPP Missed in the NJ's Fiscal Disaster"