That is the conclusion of a new report from the Urban Institute, which examined not one, not two, but five rounds of cuts New Jersey made to its public employee pension system since 2007. A 25 year-old who becomes a New Jersey public employee tomorrow would actually lose retirement money under the latest pension plan if they quit their job before turning 50.
The study generally applies to Illinois as well. The state instituted sweeping changes in its pension program two years ago for incoming employees and is, of course, exploring further reductions for current and retired public workers.
“Ten years ago the state would have been perceived as a good employer, but they are getting the perception of being unreliable,” says Kent Redfield, a political science professor emeritus at the University of Illinois-Springfield. Redfield claims that the state university system is already struggling to devise compensation and benefit packages to prospective employees.
New Jersey, meanwhile, created a five-tier pension system thanks to five rounds of cuts. All new employees fall into the fifth tier and contribute substantially more than past employees to pay for unfunded state pension obligations. Also, new workers get smaller pension payments.
As with the largest circulating Illinois paper, the Chicago Tribune, the biggest New Jersey paper, the Newark Star Ledger, energetically cheers pension cuts as a sign of fiscal responsibility. The study, though, notes collateral consequences that most pension reduction plans, including the ones in New Jersey and Illinois, do not address:
The plans are out of touch with the reality of a mobile workforce. Most people do not enter the public sector primarily because of the money. Still, there is basically no financial incentive for a person in their 20’s to become a state public employee – unless they are prepared to commit for the next 25 to 40 years, and do not mind paying more than their fair share on pensions. Such systems amount to age discrimination, the study argues.
Current employees are sill locked in to a bad system. In New Jersey, there is still the vast majority of current public employees who endure being underpaid in exchange for a nice retirement package.
Consequently, “very few [of these workers] quit even if the job is not a good fit,” the study finds. In other words, by front-loading costs and back-loading benefits, New Jersey encourages the false stereotype of state workers being idling bureaucrats waiting to collect their pension.
Illinois, meanwhile, is looking at legislation that could sharply decrease annual cost-of-living adjustment (COLA) increases for current and retired employees. A 2010 Illinois law created a two-tiered pension system that hikes the retirement age to 67 and decreases COLA increases for new employees. Redfield describes the double whammy as “decreased benefits and uncertainty of future benefits.”