Governor Christie is ready to tackle pension reform. We should all follow.

Governor Christie is ready to tackle pension reform. We should all follow.

Governer Chris Christie
New Jersey Governor Chris Christie / Offical State Photo

Most of the press coverage that New Jersey Governor Chris Christie has received recently, centered on the “Bridge-gate” scandal. It was proven that upper-level officials in the Christie administration caused a massive four day traffic jam at the foot of the busiest bridge in the US and one leading to New York City.  Some officials resigned and once Christie found out about it, he fired those responsible.  He apologized to his constituents, fully disclosed everything he knew and expressed deep regret for allowing this to happen under his watch.  For those of us who have followed Mr. Christie for many years, we know he is a man of integrity.

During his recent state-of-the-state speech, and despite the pressures from Bridge-gate, he focused on serious problems that faces New Jersey and face most other states.  The problems also face almost every municipality as well as the federal government.  He spoke about property tax reform, improving the quality of education for our youth, reducing crime and reforming the grossly underfunded pension system for public employees.

Prior administrations have made promises to long-time employees that the current income earning population may not be able to meet.  The sooner we tackle the problem, Christie noted, the less painful it will be to solve.  No matter what, though, the solution will be painful.

City and state workers were able to negotiate very generous wage and benefit packages for the past 50 years.  The benefit package included a pension plan that was overly generous.  Workers mostly made annual contributions that were supplemented by payments from the government employer.  These plans often allowed for retirement at early ages, sometimes as low as 55 years old.  The payments, made to them during retirement, where a large percentage of their last year or so salary.  The payment continued throughout their lifetime.

Part of the pension problem facing government at all levels, is that people are living a lot longer.  With many retired government workers earning in excess of $100,000 per year, these long lives are very costly for the current taxpayers who must pay this bill.  This will create huge deficits in government budgets.  In New Jersey, where a balanced budget is required by law, Governor Christie points out that in order to pay these pension obligations either taxes will have to increase substantially or government spending will have to decrease substantially.

It is not sustainable to have someone work until they are 65 and then collect a generous pension for the rest of their lives.  This is a severe problem considering people are living to be 85 or 95 or more.  Many futurists say that in the not too distant future people will be living to 110 or more routinely. Under the current system someone who retires at 65 likely worked about 40 years.  If she lives to be 105 she will then collect a pension for 40 years. It is simply impossible to work 40 years and expect to be paid for 80.

Additionally, demographics will worsen the problem.  There is a huge number of baby boomers retiring while there is a smaller number of babies born.   Worse yet, recent data indicates the labor force participation rate is at historical lows, so not only do we have proportionately fewer young people, we have a lower percentage entering the work force.

The federal government has done something to help by raising the retirement age to 67 and likely will raise it to 70 fairly soon.  City and state governments will be forced to follow.  In addition the generous retirement packages will have to be re-negotiated to reflect the current situation.  The result must be that pension payments are reduced, even for existing retirees.

Governor Chrisitie faced harsh criticism from legislators of the opposing party who noted that these retirees and even the current workers were promised pension payments and we have a duty to see that those promises are kept.  The reality is that these promises were made by government officials who didn’t carefully consider the consequences.

We simply cannot burden our children and future generations with underfunded state and municipal pensions, underfunded Social Security and now underfunded healthcare.  This is on top of the more than $17 trillion in debt that the federal government has accumulated and the more than $3 trillion in debt from States.

Bridge-gate will pass.  The investigation will probably show that Governor Chrisite did not know what his trusted cabinet members did.  When he found out he took appropriate action.  More importantly, he did not let this problem distract from his duties as governor.  That shows real leadership.

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