December 1, 2015

As of July 1, 2015 State stopped paying increments.◦ First time since CWA began representing State

workers in 1981. In 19811981, when State would not pay

increments CWA went to PERC on an application for interim relief.

Key Standards for granting Interim Relief:◦ Likelihood of Success on the MeritsLikelihood of Success on the Merits◦ Irreparable HarmIrreparable Harm

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Is there a Likelihood of Success on the Is there a Likelihood of Success on the Merits if an employer stops paying Merits if an employer stops paying automatic increments after contract automatic increments after contract expiration?expiration?

Following Contract Expiration what is the Employer’s obligation?

MaintainMaintain the Status Quo Status Quo as to terms and conditions of employment

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Prior to unilaterally changing the status quo an employer must negotiate in good faithnegotiate in good faith.

Once impasse is reached on all issues, the employer can file a notice of impasse notice of impasse with PERC.

A mediatormediator is appointed. Then a fact finderfact finder, who issues a report with

non-binding recommendations. The parties must then negotiate over negotiate over the

implementation of the fact finder’s fact finder’s recommendationsrecommendations.

Only after exhausting all those procedures can an employer implement its last best offerimplement its last best offer.

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Key QuestionKey Question: Are increments part of the Are increments part of the “status quo” “status quo” or does the obligation to pay them expire when the contract expires?

The PERC Designee found that:The status quo for State workers The status quo for State workers “included a salary structure which provided for the payment of incrementspayment of increments upon the passage of additional periods of service measured by assigned anniversary dates. The employees involved herein have successfully completed that additional period of service. Their proper Their proper placement on the salary guide which placement on the salary guide which remains in effect requires that they move remains in effect requires that they move up one step and receive the appropriate up one step and receive the appropriate salary incrementsalary increment.”

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If increments are not paid is there irreparable If increments are not paid is there irreparable harm?harm?

What is Irreparable Harm?What is Irreparable Harm? Cannot be fixed by money Can the failure to pay increments be fixed by

money? The PERC Designee found that more is at stake than

the mere loss of money. “The unilateral withholding of increments by the

employer introduced illegal economic coercion introduced illegal economic coercion into the negotiations processinto the negotiations process. The implication of such action is that if the employees agree to the employer’s position, they get their increments immediately . . . .”

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For over three decades that was the LawFor over three decades that was the Law.. In 2013 in a case involving a PBA Local and the

County of Atlantic PERC reversed 30+ years reversed 30+ years of precedentof precedent. ◦ No Accident!◦ Christie installed Kelly Hatfield Kelly Hatfield as chair and packed

the Commission with pro-management appointments In Atlantic County PERC reasoned that changed

economic realties, namely the 2% cap on property tax increases, justified a reversal of long-standing decades of precedent.

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After Atlantic CountyAtlantic County, unions knew could not go to PERC for interim relief or on an unfair practice charge.

What other option does a union have if can’t go to PERC?

Can we file a grievance and allege Can we file a grievance and allege violation of the contract even after violation of the contract even after contract expiration?contract expiration?

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That’s what the union did in Bridgewater when the township withheld increments after contract expiration.

Union filed a grievance and submitted the grievance to arbitration.

Bridgewater filed with PERC to restrain arbitration.

What is the basis for PERC restraining What is the basis for PERC restraining arbitration?arbitration?

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The grievance must involve an illegal illegal subject subject of negotiations.

Test:◦ Does subject intimately and directly affect Does subject intimately and directly affect

terms and conditions of employment?terms and conditions of employment?◦ Is the subject preempted by statute or Is the subject preempted by statute or

regulation?regulation?◦ Would negotiations significantly interfere Would negotiations significantly interfere

with the determination of government policy?with the determination of government policy? Examples of illegal subject – layoffs,

subcontracting.

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To restrain arbitration of a grievance alleging a failure to pay increments PERC would have to find that an agreement to pay increments is illegal. ◦ How could it be “illegal” for an employer and How could it be “illegal” for an employer and

a union to agree that following contract a union to agree that following contract expiration increments will continue to be expiration increments will continue to be paid? paid?

If during term of contract an employer failed to pay increments in violation of contract could we grieve and arbitrate that dispute?

Should it matter that the failure to pay increments occurs after contract expiration?

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In Bridgewater PERC restrained PERC restrained arbitration of the grievancearbitration of the grievance alleging that the employer violated the contract when it did not pay increments.

According to PERC a union and employer cannot enter into an enforceable agreement to continue paying increments after contract expiration.

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CWA has challenged the failure to pay increments by filing a grievance and by joining with other unions in bringing a lawsuit in court.

CWA will also be filing an unfair practice charge.

State has asked PERC to restrain arbitration of our grievance. ◦ And of course the State is relying exclusively State is relying exclusively

on PERC’s decisions in on PERC’s decisions in Atlantic CountyAtlantic County and and BridgewaterBridgewater. .

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Four State law enforcement unions and CWA are in court claiming that under the Civil Service State Compensation Plan increments must continue to be paid after contract expiration.

Argument was heard before Judge Jacobson on October 13, 2015.

Not surprisingly, State argues that PERC has exclusive jurisdiction.

Money for increments is in State Money for increments is in State budget. budget.

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On October 28, 2015 October 28, 2015 the Appellate Court heard argument in the Atlantic County and Bridgewater cases.◦ CWA is amicus in both cases CWA is amicus in both cases

We are hoping for a decision before the end of the year.

In the meantime, we have asked PERC not to rule on the State’s request to restrain arbitration until the Appellate Court rules.

We will also ask Judge Jacobson to wait for the Appellate Court’s decision.

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Before reviewing the last 18 months of litigation over our pensions, lets review some basics about pensions.

What is a pension?What is our objective with respect to the pension system?

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It is deferred compensation for services rendered.

If it was a 401K, rather than a defined defined benefitbenefit, employee would be entitled to a percentage of pay. ◦ If 5% and earn $50,000 employer pays into

account $2,500 a year. ◦ Money is due the year it was earned.◦ But in 401K – a defined contribution defined contribution plan – you

get out what is in account when ready to retire.◦ If invested money in stocks and market crashes,

then retirement compromised.

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Just because we have a defined benefit plan, Employer must still pay into the pension system, on an annual basis, the amount necessary to fund the benefits earned that year.

How do we know how much the employer must contribute?

Actuaries figure this out Actuaries figure this out and tell the employer how much to put in each year.◦ Depends on how much employees earn, how long they

live, how long they work, how much money the system earns from its investments, how much employees contribute

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If the actuaries get it right and if the employer listens to the actuaries then each year enough money is put into the system to pay for the benefits earned by employees that year.

The cost of the benefits earned that year is the Normal Cost

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If the employer does not pay the Normal Cost what happens?

Must pay the Normal Cost in a future year. Meanwhile what other losses does the

pension system suffer? Lost investment income.

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The unpaid Normal Cost and the lost investment income become an Unfunded Unfunded Accrued LiabilityAccrued Liability that has to be paid in future years along with the Normal Cost.

But the contributions are owed But the contributions are owed because employees worked and deferred some of their compensation so they could receive the compensation in the form of a pension upon retirement

The Unfunded Accrued Liability is what the employer owes because it did not make the payments for work performed that year

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The State stopped putting in enough money to cover the Normal Cost

Same as if an employer did not make its contribution to an employee’s 401K

20 years ago the pension system was essentially 100% funded

Now PERS is less than 50% fundedPERS is less than 50% funded PERS, TPAF and PFRS will run out of PERS, TPAF and PFRS will run out of

money in 2027 – 12 years from now money in 2027 – 12 years from now What happened?

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Recall that she ran against Florio in 1993◦ Florio was ahead in the polls even though State

workers were fed up with him◦ Florio threated to layoff 10,000 workers unless we

agreed to pay 25% for healthcare and agree to deep wage cuts

◦ Florio was the first Governor to suggest that the pension system could be cash cow for funding State government

◦ But he had also increased the income and sales taxes

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As the race tightened Whitman, a moderate Republican, promised to cut income and corporate business taxes

Ended up beating Florio by less than1% - 25,000 votes

Whitman’s tax cut promise has haunted public workers ever since

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Knew that to deliver on promise of tax cuts had to come up with over a billion in lost revenue

During transition Whitman hired actuaries to figure out how to lower the State’s pension payments ◦Changed the method of valuing assets◦Changed the funding method◦Manipulated actuarial assumptions

Result was that the money saved from the money saved from the reducing contributions to the pension system reducing contributions to the pension system equated to the reduction in revenue caused by equated to the reduction in revenue caused by tax cuts – tax cuts – almost almost $4 billion $4 billion over five yearsover five years

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Whitman’s plan was to raid the pension raid the pension system to pay for her tax cutssystem to pay for her tax cuts

That is precisely what she did CWA and NJEA understood this and did not

stand idly by Went into federal court

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1995 – CWA and NJEA file complaint in federal court alleging that changes to pension laws under Governor Whitman would result in the underfunding of the pension system in violation of contractual right to a soundly funded pension system As early as 1995 argued that there was a

contractual right to funding Eventually settled the litigation in

1997

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Pension Obligation Bond Act and Settlement of CWA and NJEA lawsuit

Legislation created “Non-forfeitable” Non-forfeitable” rightright to pension benefits and required required the State to make an annual normal the State to make an annual normal contribution and an annual contribution and an annual unfunded liability contribution unfunded liability contribution ◦A non-forfeitable right is defined to mean that the benefits program benefits program cannot be reducedcannot be reduced for any employee for whom the right has attached

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1997-2010 State paid between 0% and 10% of required contribution, with exception of 2007 and 2008 when Corzine contributed about 50% of what was owed

2010 – Legislature passed - Chapter 1 - requiring the State, beginning in FY 2012, to make the full annual required contribution as computed by the systems’ actuaries, but permitted a phase in of 1/7 per yearphase in of 1/7 per year.

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March 4, 2010March 4, 2010 – 18 days before Chapter 1 was enacted, the Appellate Division Appellate Division issued its decisionissued its decision in a Pension Funding case brought by NJEA◦The appellate court found:◦1. There is a contractual right to contractual right to the receiptthe receipt of pension benefits

◦2. But no corresponding no corresponding contractual right to fundingcontractual right to funding.

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Grand Bargain Grand Bargain struck between Governor and Legislature – Touted by Christie as greatest bipartisan legislative accomplishment

Chapter 78 is enacted in response to the NJEA decision ◦1. Chapter 78 suspended COLAs to retirees

until certain threshold funding ratios were met◦2. Increased employee contributions from 5.5% to 7.5% for civilian employees and from 8.5% to 10% for police and fire

◦3. Created a contractual right to the Created a contractual right to the payment of the annual required payment of the annual required contributioncontribution

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We wrote the strongest possible strongest possible statutory languagestatutory language

But recognized the risks Knew only guarantee to secure funding Knew only guarantee to secure funding

would be a constitutional amendmentwould be a constitutional amendment Not a political option at the time Initially appeared to work

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◦Each member “shall have a contractual right contractual right to the annual required contribution to the annual required contribution amount being made by the member’s employer or by any other public entity. The contractual right to the annual required contribution means that the employer or other public entity shall make the annual required contribution on a timely basis to help ensure that the retirement system is securely funded and that the retirement benefits to which the members are entitled by statute and in consideration in consideration for their public service and in for their public service and in compensation for their work compensation for their work will be paid upon retirement.”

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FY 2013 (July 1, 2012- June 30, 2013)State put in 1/7 of Annual Required Contribution

FY 2014 – 2/7 appropriated and paidappropriated and paid FY 2015 – 3/7 appropriatedappropriated - $1.58 billion -

butbut May 2014 reduced to $661 millionreduced to $661 million FY 2016 – 4/7 to be appropriated to be appropriated - $2.25

billion – line item vetoed $1.57 billion and paid $681 million paid $681 million ◦ Legislature presented Governor with presented Governor with

balanced budgetbalanced budget that fully funded pension system and increased taxes on millionaires and on corporations

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June 2014June 2014, filed complaint in Superior Court, Mercer County – Judge Mary Jacobson, Assignment Judge

Unions alleged that the unmistakable intent unmistakable intent of the Legislature and the Governor was to create a contractual right to fundingcontractual right to funding.

Contractual rights are protected by the Contract ClauseContract Clause – a provision of the NJ NJ ConstitutionConstitution, which provides:““The Legislature shall pass no law The Legislature shall pass no law

impairing the obligation of impairing the obligation of contract.”contract.”

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There is no contractual right to pension funding because the Legislature and the Governor did not Legislature and the Governor did not have the power to create such a have the power to create such a contractual rightcontractual right.◦Two other constitutional provisions

prevent the formation of a contractual right to funding – the Debt Limitation Clause and the Appropriations Clause

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Governor argued that Chapter 78 was void from the startvoid from the start.

Debt Limitation Clause Debt Limitation Clause of NJ Constitution requires that bonds, loans, other debts be submitted to the voters for approval.◦Governor argued Governor argued that the requirement

that State pay its annual required pension contribution creates a debt creates a debt and under the Debt Limitation Clause

◦Debt Limitation Clause provides, in part, that the Legislature shall not shall not “create . . . a “create . . . a debt . . . or liability” unless it is debt . . . or liability” unless it is submitted to the voters for approval.submitted to the voters for approval.

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Pensions are deferred deferred compensation for services already compensation for services already renderedrendered.

Court held that Chapter 78 did not “create a debt.”

◦ Chapter 78 is a payment plan to pay off an payment plan to pay off an existing debtexisting debt..

◦ No new debt as been created.◦ The Unfunded Accrued Liability is money

already owed.

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Court found that Chapter 78 did not require that the State borrow money to make pension payments.

Chapter 78 simply required an annual appropriation to pay the required pension contribution.

Absent borrowing money, no debt has Absent borrowing money, no debt has been createdbeen created.

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The Court concludes:“In short, the court cannot allow the State to simply walk away from its financial obligations, especially when those obligations especially when those obligations were of the State’s own were of the State’s own creationcreation.” .”

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On February 24 – the day after the court issued its decision – the Governor gave his budget addressbudget address.

Governor recommended a payment of $1.3 billion.

The ARC required to be paid by Chapter 78 was $3.1 billion.

$1.8 billion short$1.8 billion short Governor requested that NJ Supreme Court

take case and reverse Judge Jacobson

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Court reversed Judge Jacobson’s Court reversed Judge Jacobson’s decision decision that Chapter 78 created a binding contract requiring the State to make its annual contribution to the pension systems.

5-2 decision5-2 decision Five member majority – Justices LaVecchia,

Paterson, Solomon, Fernandez Vina and Judge Cuff

Two members dissented – Chief Justice Rabner and Justice Albin

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“We conclude that the Legislature and Governor clearly expressed an intent clearly expressed an intent that Chapter 78 create a “contract that Chapter 78 create a “contract rightright” to timely and recurring ARC ” to timely and recurring ARC payments payments to reduce the unfunded liability of the pension funds to safe levels.”

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Chapter 78’s requirement that the State make annual contributions to the pension systems as determined by actuaries creates a debt creates a debt that violates the State Constitution Debt Debt Limitation ClauseLimitation Clause because it was not submitted to the voters for approval.

Also violatesviolates the State Constitution’s Appropriations Clause Appropriations Clause which vests in the Legislature the authority to construct an annual balanced budget without any constraints, other than those imposed by the Constitution and voter approved debt.

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Are our Are our non-forfeitable rights non-forfeitable rights to to pension benefits enforceablepension benefits enforceable?

Currently, for all employees hired prior to hired prior to 20102010, the pension benefit program they were entitled to after five years of service, assuming they vested with ten years of service, cannot be reduced.

Employees hired after 2010 hired after 2010 vest after 10 years and are entitled to the benefits they earned during each year of their employment based on the benefit program in effect.

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The Attorney General agrees that public employees have an enforceable contractual right to their pension benefits.

That means that if the pension funds run dry, pension benefits will have to be paid from general treasury funds.

The current annual cost annual cost of pension benefits to retirees in TPAF, State PERS and State PFRS is $8 billion$8 billion.

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“In 1997In 1997, with enactment of Chapter 113 of the Laws of New Jersey, the Legislature granted to members of the public pension funds a “non-forfeitable right to receive benefitsnon-forfeitable right to receive benefits,” a right defined to mean that benefits could not be reduced once the right to them had attached. The individual members of the public pension systems, by their public service, by their public service, earned this delayed part of their earned this delayed part of their compensationcompensation. That those men and women That those men and women must be paid their pension benefits when must be paid their pension benefits when due is not in question due is not in question in this matterin this matter.”

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Could not on the one hand say that there is a constitutionally-protected contractual right to pension benefits and on the other hand hold that there is no enforceable contractual right to the funding of those benefits by the State.

If cannot bind a future legislature to If cannot bind a future legislature to appropriate $4 billion to fund pension appropriate $4 billion to fund pension benefits, how can a future legislature benefits, how can a future legislature be bound to appropriate $8 billion to be bound to appropriate $8 billion to pay benefits when funds are bankruptpay benefits when funds are bankrupt??

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The United States Constitution is the United States Constitution is the supreme law of the land supreme law of the land and the Contract Clause prohibits a State from impairing its contractual obligations

Never before has the Debt Limitations Clause been applied to the ordinary operating expenses of government, such as deferred deferred compensation earned by public workers compensation earned by public workers payable as pension benefits.

““The dismal logic of the majority’s decision The dismal logic of the majority’s decision is that the political branches, in accordance is that the political branches, in accordance with the State Constitution, can let the with the State Constitution, can let the pension fund run dry and leave public pension fund run dry and leave public service workers pauperized in their service workers pauperized in their retirementretirement.” .”

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“The The non-forfeitable right non-forfeitable right to receive one’s deferred to receive one’s deferred wages is wages is a hollow right a hollow right if if there is insufficient money in there is insufficient money in the pension fund to pay those the pension fund to pay those wageswages.”

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Unions filed Petition for Certiorari with the Unions filed Petition for Certiorari with the United States Supreme CourtUnited States Supreme Court◦ Asking Supreme Court to review the decision of the NJ

Court◦ US Supreme Court has directed the State to US Supreme Court has directed the State to

respond to our Petitionrespond to our Petition The NJ Supreme Court, construing common state

constitutional provisions, declared that the State cannot enter into binding multi-year contracts◦ That would include collective bargaining agreements,

leases, contracts for office supplies◦ That ruling effectively guts the Federal Contract ruling effectively guts the Federal Contract

ClauseClause

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Real Solution is a Constitutional Constitutional Amendment Amendment

First resolution to be approved by a majority of both the Senate and Assembly during this lame duck session

Looking to have amendment on ballot for November 2016 general election

In meantime will be critical to keep pressure on the Legislature and Governor to put as much money into the system as possible

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The Amendment does four things: 1. Constitutionally mandates that the State

make its Annual Required Contributionmake its Annual Required Contribution 2. Creates a constitutional right to non-constitutional right to non-

forfeitable benefits forfeitable benefits for vested employees hired prior to 2010.

3. Creates a constitutional right to earned a constitutional right to earned benefits benefits for vested employees hired after 2010.

4. Makes the constitutional rights and obligations created by the amendment enforceable in courtenforceable in court.

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Members hired prior to 2010:◦ Vested members of a retirement system or pension

fund for public employees administered by the State who were members of a system or fund prior to May 21, 2010 and who attained five years of service credit in the system or fund and were provided pursuant to law with a non-forfeitable right to receive benefits shall have shall have an an indefeasible non-forfeitable right indefeasible non-forfeitable right toto receive benefits as provided under the laws governing receive benefits as provided under the laws governing the system or fund upon the attainment of five years the system or fund upon the attainment of five years of service credit in the retirement system or fundof service credit in the retirement system or fund. A "non-forfeitable right to receive benefits" shall mean that the benefits program, for any employee for whom the right has attached, cannot be reduced.

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Members hired after 2010:◦ Vested members of a retirement system or

pension fund for public employees administered by the State for whom the non-forfeitable right was not provided by law who attain ten years of service credit shall have an an indefeasible right indefeasible right to to receive the benefits earned each year receive the benefits earned each year under the laws governing the system or fund.

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The State shall make its annual required shall make its annual required contribution contribution to each retirement system and pension fund for public employees administered by the State as that contribution is determined by the board of trustees of each system or fund in consultation with the actuary for that system or fund. . .The actuary for each system or fund The actuary for each system or fund shall compute the annual required contribution shall compute the annual required contribution based on an annual valuation of the assets and liabilities of the system or fund pursuant to consistent and generally accepted actuarial standards.

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No general appropriation law for a fiscal year shall be enacted without including appropriations for the State contributions to each retirement system and pension fund for public employees administered by the State required pursuant to other provisions of this Constitution.

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Initial polling shows strong support◦ More recent polling continues to show strong

support Amendment would be on 2016 ballot. Presidential election year.

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Opinion on Public Employee Opinion on Public Employee Pensions Pensions

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Amendment Initial SupportAmendment Initial Support

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Who do you hold Who do you hold responsible?responsible?

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Informed Re-voteInformed Re-vote

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