New Jersey’s Pension System Needs Overhaul

Published October 9, 2008

New Jersey is right to take aim at its state pension system, but nibbling around the edges will not solve its pension predicament (September 30, “Pension reforms are signed into law”). Facing an unfunded liability of $28 billion and deficit of $3.2 billion, the state needs to look at overhauling the structure of the pension system. By leaving these liabilities unfunded, New Jersey is merely pushing the burden onto the backs of future taxpayers.

The private sector faced a similar pension crisis and chose to switch to defined-contribution pension plans. This allowed firms to eliminate open-ended liabilities and offer workers more pension portability and individual control.

Considering that vesting periods are often 10 years or more, many government workers are currently being boxed into a corner, causing workers to stay with jobs they don’t like in order to keep their benefits. Under a defined-contribution pension, workers are free to transport their pension from job to job without a vesting period.

Following the private sector’s lead and switching state and local workers’ pension system to a defined-contribution structure would prevent states from being burdened by the future liabilities of a pension crisis and make budgeting more predictable.


John Nothdurft ([email protected]) is the budget and tax legislative specialist for The Heartland Institute.