By Elise Young
Switching future New Jersey public workers to a 401(k)-type retirement plan, a move Governor Chris Christie is considering, would worsen the pension system’s unfunded liability, according to advocates for the poor.
Closing the existing defined-benefit plan to new enrollees would involve $42 billion in transition costs, according to a report by New Jersey Policy Perspective. Later hires, who would make their own investment decisions rather than leave them to professional managers, would risk retiring with less money, the Trenton-based group said today.
Christie, a second-term Republican, has said his 2011 overhaul of public pensions and benefits didn’t go far enough to contain costs. Though he hasn’t specified what proposals he plans to make, he has spoken of higher employee contributions and retirement ages, and switching workers with fewer service years to a 401(k)-type model.
Moving employees to defined-contribution plans failed in three states that tried it, and was rejected in 13 others, including California, New York, Pennsylvania and Texas, according to the Policy Perspective study. Its author, Stephen Herzenberg, an economist for the Keystone Research Center in Harrisburg, Pennsylvania, based his cost estimate on studies conducted in that state last year of plans with similar characteristics to New Jersey’s.
“There is no flaw in the basic design of New Jersey’s defined pension plans, as long as these are managed well,” Herzenberg wrote.
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