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Thursday, October 19, 2006 • BY DUNSTAN McNICHOL • Star-Ledger Staff

As lawmakers grapple with ways to rein in the cost of public employee retirement benefits, a report released yesterday says New Jersey's price tag for pensions will balloon by nearly $100 million next year.

And this soaring cost can't be blamed on the pension-system problems lawmakers are vowing to fix.

A big reason instead: Retirees are living longer than the insurance gurus predicted they would.

"It's good news and bad news," said Janet Cranna, an actuary with Buck Consultants who presented the new information to trustees of the Public Employees Retirement System yesterday. "People are living longer."

Projections made by actuaries assumed nearly 14,000 retirees covered by PERS would die during the past three years. The actual figure proved to be 12,495.

This year's review showed the projections also underestimated how many employees would quit their government jobs before they qualified for retirement benefits. The actuaries figured 42,600 government workers would quit, but fewer than 36,000 did.

To bankroll the unanticipated costs, the retirement system for state and local government workers is going to need $849 million next year -- or $97 million more than actuaries had projected earlier this year. That extra cost will carry over each year after that.

"We're hemorrhaging," said Sen. Bill Gormley (R-Atlantic), a member of the special legislative panel reviewing pension and benefit costs as part of an effort to trim property tax bills. "We're hemorrhaging and we have to do something."

Members of the retirement system's board of trustees accepted the actuary's report with little comment.

"It is what it is," said board member Ned Thomson. "There's not a lot of surprises."

The Public Employees Retirement System covers about 311,000 working and retired employees of state and local governments throughout New Jersey. It is the second largest of New Jersey's seven state-funded retirement systems, behind the Teachers' Pension and Annuity Fund.

Yesterday's report was an update required every three years, in which experts revisit the assumptions about pay, longevity, length of employment and other elements that go into the formula used to calculate the amount the pension funds needed each year for long-term benefit payments.

The added costs will be spread among the state and municipalities. The cost to the state is expected to be $403 million, a rise of $45 million, the report states. The bill for local taxpayers will be $446 million, an increase of $54 million.

"It concerns me greatly, because it's the property taxpayer who's once again going to take it on the chin for this miscalculation," said Bill Dressel, executive director of the New Jersey State League of Municipalities. "It's just another example, and could be the poster child for what has gone wrong with the way we have been managing our pension costs for the past many years."

Pension costs have become a mounting problem for state and local officials. Gov. Jon Corzine included more than $1.1 billion in the current state budget, a sharp change from prior years, when the state skipped the bulk of its pension payments. But $1.1 billion is still far short of meeting the cost projections for the state's seven retirement systems.

Municipal governments, which were excused from making pension contributions from 1997 to 2004, have seen their contributions into the retirement systems for government workers and police and firefighters soar from about $250 million in 2005 to $650 million this year.

In response, lawmakers studying the problem are considering changes including a higher retirement age, limited benefits for part-time workers and a wholesale replacement of the current retirement program with a 401(k)-style program for new employees.

"In his budget address the governor said that our long-term pension liability is a real problem and one that has been deferred for too long; that is why he fought for a $1.1 billion pension contribution in this year's budget," Corzine spokesman Brendan Gilfillan said. "These new figures further illustrate the need for the kind of reform and restructuring of the pension system that the governor called for in his address to the special session."

N.J. pension formula forgot retirees are living longer

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