Chris Christie overhauled the entire pension system and came up with a new one. This new system includes an eight year schedule of steadily rising payment by workers and taxpayers to the system in order to fund it. It was agreed that the…
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the Governor raises concerns of whether the government will beat the time scheduled to pay the $1.7 billion which will be just a third of what the government is supposed to pay by 2018.
In his state of the state speech last month, the governor said that education and other needs will be shortchanged by the rising payments. He is expected to continue with the speech on Tuesday during the annual budget address. Over 40 states have overhauled their pension systems but experts say that this is just deferment of costs of pension to the future.
Pension overhauls have failed because the cost of benefits and money set aside for payment has grown from $3.1million in 2009 to $4 trillion this year according to Joshua D. Rauh, a finance professor at Stanford University. The gap keeps widening from year to year and many states are in dept of amount equal to or more than their annual revenue. Pension overhauls experts’ advice that the most effective solution is to raise taxes substantially or do away with future retirement benefits of public workers. This is illegal in the government but is practiced in companies in some states.
There are many reasons why pension overhauls have failed. One is state contributions are deferred to pension funds and end up in depth in the long term. Pension investments earning estimates are also overly optimistic. Another reason is politics. Governors and legislatures are unwilling to spend on financing their failing pension systems. New Jersey for example diverted the pension systems money to other programs promising better benefits in 1992.By 2010, the whole system was unfunded and the state accused of securities fraud by federal regulators.
The system was redeemed in 2011 with several changes. Retirement age for new workers rose to 65 years with 30 years of service from 55years with 25years of service. There was also compulsory increase in contribution from current workers and suspension of cost of living increase for retired workers. This
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