N.J. Supreme Court Will Consider COLAs

An updated docket sheet on the New Jersey State Supreme Court website confirms the court will take up an important case considering whether a pension reform measure passed by Governor Chris Christie improperly suspended cost of living adjustments for state pensioners.

Many New Jersey public sector pensioners saw their cost-of-living adjustments (COLA) suspended under a pension-reform bill signed in June 2011 by New Jersey Governor Chris Christie, aimed at closing an approximately $11 billion unfunded liability through a variety of changes and overhauls. Among the reforms, retirees in the system were required to give up COLAs until pension plans in the state reached certain funding hurdles, generally 80% funded.

At the time, the state pension system only had assets to cover 62% of liabilities, and sought to reach an 88% funding goal over the next 30 years. Retirees were to be compensated for giving up their COLAs through larger pension contributions to be made by the state in subsequent years, but the increases did not materialize due to budgetary pressures and a change of position from Governor Christie. This lead to a string of challenges from state workers, retiree groups and individual pensioners.

Now the Supreme Court says it will consider the following question: “Is the State of New Jersey entitled to sovereign immunity with respect to plaintiffs’ federal Contract Clause claim; and do these public-employee plaintiffs have a contractual right to the payment of cost of living increases?”

NEXT: A second challenge for Christie

This is a different approach from an earlier challenge to the reform package, which was the subject of another New Jersey Supreme Court decision handed down earlier this summer. That challenge, which proved unsuccessful, sought to force Governor Christie to comply with the parts of the reform package that pledged greater pension fund contributions from the state—claiming the pensioners had a contractual right to the increases based on their formal agreement with the state.

According to the court’s opinion in that case, the negotiating parties may have included contractual words in the reform legislation that intended to compel the Governor to make good on his funding promises, “but those words, no matter their clarity, could not create an enforceable contract. Voter approval is required to render this a legally enforceable contractual agreement compelling appropriations of this size covering succeeding fiscal years…”

The court said the promised contributions are enforceable only as an agreement that is subject to appropriation, which under the Appropriations Clause of the State Constitution renders it subject to the annual budgetary appropriations process. “In that process, the payment may not be compelled by the Judiciary.”

The current challenge, on the other hand, seeks to void central portions of the reform package itself, under which the COLA suspension is being enforced.