NJ Supreme Court hears arguments over cost of living adjustments in pension case

After several years of back-and-forth litigation and a full two hours of in-person arguments before the New Jersey Supreme Court yesterday, the fate of the state’s $72 billion public-employee pension system now depends largely on how the justices interpret just one phrase from a nearly two-decades-old law.

Do the words “benefits program” as written into a piece of state legislation from 1997 that toughened up protections for public workers’ pensions cover both their pension benefits and regular cost-of-living increases? Or does the phrase apply only to the base pension benefits?

A lot is riding on the definition that the justices will arrive at given that the state pension system is already underfunded by roughly $40 billion. If they side with a group of retired public workers who believe the 1997 protections apply to both pension benefits and the cost-of-living increases, another $13 billion would be tacked on to the pension system’s unfunded liability, according to one recent estimate.

The case is also the latest test for a state Supreme Court that Gov. Chris Christie has worked hard to nudge more to the right since taking office in early 2010. And all eyes will be trained on how the court’s lone independent will rule in the case as Christie and Senate President Stephen Sweeney (D-Gloucester) remain locked in a heated feud over the political makeup of the high court.

Less than a year ago, lawyers for the Christie administration went before the Supreme Court for oral arguments in another major pension case. They took the unprecedented position that a main element of a signature pension-reform law enacted by Christie in 2011, a section that called on the state to make increased contributions into the pension system, was unconstitutional.

But yesterday, the Christie administration lawyers launched a full-throated defense of another section of the law known as Chapter 78, saying language that suspended the cost-of-living increases for retirees is fully legal. Their defense came in the wake of a 2014 state appellate court ruling that sided with a group of retired workers who believe the cost-of-living increases cannot be suspended based on “non-forfeitable rights” established by the 1997 law.

During oral arguments before the Supreme Court yesterday, assistant state Attorney General Jean Reilly said the state interprets the 1997 language to mean retirees only have an unbreakable right to their base pension, not the cost-of-living increases. If the lawmakers wanted the protections to extend to cost-of-living increases, they would have clearly said that in the law, she said.

“We believe that this interpretation is the definitive one,” she told the justices, adding the cost-of-living increases are “separate and distinct.”

But Charles Ouslander, a retired state employee who is one of the plaintiffs in the case, noted the lawmakers wrote in an exception for health benefits for retirees. If they wanted to also include an exception for the cost-of-living increases, they would have written that in as well, he argued.

“By excluding healthcare, you’ve also included everything else under that broad phrase ‘benefits program,’” Ouslander said.

His comments came in response to a question asked by Justice Anne Patterson, a Republican nominee of Christie’s. It was one of several hard questions that Patterson posed to Ouslander and other attorneys for the retired workers and their unions.

Meanwhile, it was Justice Barry Albin, a Democrat nominated by former Democratic Gov. Jim McGreevey, who seemed to press Reilly the most.

Wouldn’t workers across the state read the statute about their unbreakable “benefits program” and think it meant that both their pensions and the cost-of-living increases were non-forfeitable, Albin asked. “How do you think normal people read this?,” he said during one of the more noteworthy exchanges . But all eyes will be on how Justice Jaynee LaVecchia, an independent nominee of former Republican Gov. Christie Whitman, will view the arguments made by both the state’s attorneys and the retired employees yesterday.

That’s because the makeup of the high court right now is split between Patterson and two other Republicans, and Albin and another Democrat. There is also a vacancy that’s being filled by Appellate Division Judge Catherine Cuff, who is also a Democrat.

Christie has argued that long-held state tradition permits the governor to seat a court that has as many as four justices from his party. But Sweeney has blockedconfirmation hearings for any additional Republican nominees from Christie, saying LaVecchia, though she is registered as an independent, should be considered a Republican for the purposes of determining the court’s partisan balance.

Last year, in the case involving the schedule of state pension contributions that were spelled out in Chapter 78, it was LaVecchia who LaVecchia who wrote the majority opinion in favor of the Christie administration. The ruling determined that only New Jersey voters could commit the state to such long-term obligations.

Several weeks later, the high court agreed to hear oral arguments in the case involving the cost-of-living increases, which had reached the appellate court after the state prevailed in Superior Court.

It appears the Supreme Court again has enough votes to side with the Christie administration, but if it instead rules in favor of the retired workers their decision would throw the pension system, which funds the retirements of an estimated 773,000 current and retired workers, into deeper fiscal distress.

An analysis earlier this year by Moody’s Investors Service, a major Wall Street credit rating agency, determined the pension system’s unfunded liability would go up by another $13 billion if the state loses the cost-of-living increases case.

“The heightened burden, combined with an increase in benefit costs, would hurt New Jersey’s pension fund cash flows and funded status and the state’s ability to reach structural budget balance,” Moody’s said in its analysis.

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NJ Spotlight, an independent online news service on issues critical to New Jersey, makes its in-depth reporting available to NewsWorks.