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Thursday, August 24, 2006 • BY ROBERT SCHWANEBERG • Star-Ledger Staff

Pension benefits for public employees who have been on the job five years or longer cannot be reduced without violating the Constitution, a lawyer in the nonpartisan Office of Legislative Services told lawmakers yesterday.

"Benefits are protected for employees with five years or more of service and also retired employees," OLS attorney Peter Kelly told a legislative committee exploring ways of cutting property taxes by reforming pension and health benefits.

Kelly said a law passed in 1997 gave public employees with five years of service "a nonforfeitable right" to their pensions that can be lost only by dishonorable service. It also created a contractual obliga tion on the part of the state that is backed up by the New Jersey and U.S. constitutions, Kelly said.

His opinion delighted leaders of public employee unions and frustrated at least one lawmaker. Assemblyman Kevin O'Toole (R- Essex) asked whether the state is stuck with a system that allows employees to pad their pensions by holding multiple public jobs.

"Are you saying we're precluded from preventing those kinds of abuses?" O'Toole asked.

Kelly replied that was a "gray area" but it would be safest to make any changes apply only to the future to "reduce the risk of litigation."

When O'Toole suggested that cutting benefits would help public employees by "shoring up the pension system," Kelly replied the state would have to be facing "financial destruction" before the courts would allow it to escape its contractual obligations.

Sen. Ronald Rice (D-Essex) said there are "no substantial savings" in limiting the number of public jobs one person can hold.

"I get tired of what seems to be a jealousy issue rather than an economic issue," said Rice, who also served as deputy mayor of Newark until losing the mayoral race to Cory Booker.

Sen. William Gormley (R-Atlantic) said there appears to be so little potential for pension savings that the committee should quickly turn its attention to reducing the cost of state-provided health care benefits. "That's where we should be focused," Gormley said.

But Sen. Nicholas Scutari (D- Union), who co-chairs the Joint Committee on Public Employee Benefits Reform, said it should overhaul the pension system by preserving benefits for current employees while "making wholesale changes" for future hires.

"A multitiered system of benefits would allow us to honor our contractual obligations to current workers and still deal fairly with future workers," Scutari said.

In his July 28 speech kicking off the Legislature's study of property tax relief and reform, Gov. Jon Cor zine said a two-tiered benefits system, including an increased retirement age for new hires, must be considered in negotiations for the next state worker contract.

Carla Katz, president of Local 1034 of the Communications Workers of America, said yesterday it op poses such a two-tiered pension system.

"You'll have two people doing the exact same job with a different total compensation package," Katz said. "It's essentially unfair and it destroys morale."

Katz said Kelly's opinion "confirms what our union's position has long been, which is there is a legal obligation to pensioners and employees in the system to keep benefit levels exactly where they are."

"We're not the cause of the property tax problem, and they're not going to be able to solve it on the backs of public employees," Katz said. "This hearing today went a long way to making that even more clear."

Lawyer cites statute protecting public workers' pensions

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