US - Local unions have filed a lawsuit against New Jersey to overthrow a new law which requires employees to contribute more for their pension.
Under the pension reform, the state plans to reduce pension benefits by suspending the cost of living adjustment (COLA) for current and future retirees and increasing the contributions of active employees.
The suit alleges the state has illegally taken away promised and earned contractual benefits and the increased contribution violates the state and federal contract rights of the affected employees. It also challenges the state's choice to phase in its contributions over seven years instead of paying its full actuarially required contribution, which unions say will continue to place a burden on the state budget.
Under the plan, employee contributions in the Teachers' Pension and Annuity Fund and the Public Employees' Retirement System will increase from 5.5% to 6.5% with an additional contribution of 1% to be phased-in equal instalments over seven years. Employee contributions will also increase for the Police and Fireman's Retirement System from 8.5% to 10%.
Some of the unions involved were the New Jersey Education Association (NJEA), various branches of the AFL-CIO, the International Brotherhood of Teamsters Local 97 and other public unions representing fire-fighters, police and teachers.
NJEA president Barbara Keshishian said: "This lawsuit is about basic fairness and justice. Governor (Chris) Christie and the legislature passed a law that illegally takes away benefits that school employees and others have already earned through their service to the people of New Jersey. Now that they're living on a fixed income, they're being told that the state is reneging on its promise. That's a travesty."
The state of New Jersey failed to respond when asked to comment on the allegations.
The lawsuit follows the State's downgrade of its general obligation bonds to AA- from AA. Fitch Ratings chose to reduce its ratings because of New Jersey's high debt burden, unfunded pension and employee liabilities and limited financial flexibility (Global Pensions: 18 August 2011).
Fitch is the last of the three ratings agencies - including Standard & Poor's and Moody's - to downgrade New Jersey's rating.
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