In a ruling that keeps New Jersey's already weak pension funding position from getting worse, the state Supreme Court upheld Gov. Chris Christie's 2011 suspension to cost of living adjustments for retirees' pension benefits.
The state's highest court ruled six-to-one Thursday that Christie's 2011 COLA freeze did not violate worker pension rights.
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"In this instance, proof of unequivocal intent to create a non-forfeitable right to yet-unreceived COLAs is lacking," wrote Justice Jaynee LaVecchia in the decision. "We conclude that the Legislature retained its inherent sovereign right to act in its best judgment of the public interest and to pass legislation suspending further COLAs."
A January report from Moody's said if the Supreme Court ruled against Christie, the state's unfunded pension liability would jump by 33% from $40 billion to $53 billion.
Moody's rates New Jersey general obligation bonds A2. The Garden State is rated A by Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency.
"The State of New Jersey Supreme Court decision to uphold the Cost of Living Adjustment suspension for pensions eliminates a major threat to the state's fiscal stability, which is already challenged by narrow reserves and large, rapidly growing pension costs," said Moody's analyst Baye Larsen. "New Jersey's finances have been more stable in recent years, and the state projects that 2016 reserves will remain on target and above prior years at $550 million. However, reserves at this level will provide limited cushion against further budget volatility."
S&P said in response to the ruling that while it avoids an immediate large increase in its unfunded pension liability, there remains credit pressure on the state's "chronic underfunding." Analysts David Hitchcock and John Sugden noted that New Jersey's 37.5% pension-funding level as of July 1, 2015 is a major reason why it has a negative outlook on New Jersey.
"If the court had ruled against the state, we believe it would have exacerbated pension pressures further," said Hitchcock and Sugden.
New Jersey has underfunded its pensions more than any other U.S. state for the last decade, according to a 2015 study from the National Association of State Retirement Administrators. The Garden State paid an average of 38% of its annual actuarially required contribution from 2001 to 2013, the NASRA study said.
"I am outraged that the Court has condoned the actions of Gov. Christie and the New Jersey Legislature in taking away the COLAs that our members have earned over the course of their careers," New Jersey Education Association president Wendell Steinhauer said in a statement. "This is theft, plain and simple."
The New Jersey Supreme Court also sided with Christie a year ago when it ruled 5-2 that a section of the Republican governor's 2011 pension reform law that called for ramp-up of the state's pension system over a seven-year period was not legally enforceable. The U.S. Supreme Court declined to hear an appeal, which enabled Christie to keep cuts in place with $1.57 billion in unfunded actuarial accrued liability pension payments he vetoed for the 2015 fiscal year.
"Today's ruling allows the state to continue providing full, on-time payments to the public pension system and avoids more than $17.5 billion dollars in additional, unaffordable costs," Christie said in a statement Thursday. "It also affirms my administration's position that our Constitution and public pension system must work for all New Jerseyans, not just the special class of public union employees who represent just 8.9% of New Jersey's population."
