LEGISLATIVE FISCAL ESTIMATE
SENATE, No. 4404
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JUNE 16, 2025
SUMMARY
|
Synopsis: |
Reinstates automatic COLAs for retirement benefits of certain PFRS members. |
|
Type of Impact: |
Annual State expenditure increase |
|
Agencies Affected: |
Department of the Treasury |
|
Office of Legislative Services Estimate |
|
|
Annual State Expenditure Increase |
$600 million to $650 million |
|
|
|
· The Office of Legislative Services (OLS) finds that establishing cost-of-living adjustments for certain members of the Police and Firemen’s Retirement System would create an unfunded liability of $7.8 billion with an annual State payment obligation of between $600 million and $650 million over 30 years at a seven percent discount rate. The bill would require the State to pay for the State and local government portions of the increased benefit.
BILL DESCRIPTION
This bill would establish cost-of-living adjustments for certain retirees of the Police and Firemen’s Retirement System after the State discontinued such adjustments for all State-administered retirement systems in 2011.
Under the bill, Police and Firemen’s Retirement System retirees who have been receiving retirement allowances continuously for at least ten years would receive the benefit. Retirees who are in deferred retirement; retirees with 20 to less than 25 years of service credit; and retirement system members who are hired 30 days after the effective date of the bill would be ineligible.
Retirement allowances not exceeding $75,000 per year would be adjusted annually by the Consumer Price Index for Urban Wage Earners and Clerical Workers as published by the Bureau of Labor Statistics in the United States Department of Labor. The adjustment would be capped at 1.0 percent for retirement allowances greater than $75,000 per year. The $75,000 threshold, in turn, would also be adjusted annually by the same index.
Finally, the bill would require the State to pay for the State and local share of the employer cost of the increased pension benefit.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS finds that this bill would increase costs to the State by between $600 million and $650 million annually by establishing cost-of-living adjustments for all members of the Police and Firemen’s Retirement System who have been receiving retirement allowances continuously for at least ten years, except for: retirees who are in deferred retirement; retirees with 20 to less than 25 years of service credit; and members of the retirement system who are hired 30 days after the effective date of the bill.
This estimate is based on 33,680 retiree records meeting the eligibility requirements of the bill and an assumed 2.4 percent annual inflation adjustment for eligible retirees with an annual pension allowance not exceeding $75,000 and 1.0 percent for those with an annual pension allowance exceeding $75,000. Of the 33,680 retirees who meet the eligibility requirements, about 80 percent currently receive retirement allowances not exceeding $75,000 and about 20 percent currently receive retirement allowances greater than $75,000.
The increased pension benefits would create an unfunded liability of $7.8 billion with an annual State payment of between $600 million and $650 million over 30 years at a seven percent discount rate to pay for the State and local portion of the increased pension benefits.
For reference, the Executive estimated in response to the FY 2019 OLS Interdepartmental Accounts Discussion Points that the combined State and local employer costs of full reinstatement of cost-of-living adjustments to all retirees of the Police and Firemen’s Retirement System would total $809 million per year. Although the Executive analysis relied on assumptions and data inputs that differ from this bill, it provides a second perspective on the potential cost of providing cost-of-living adjustments to retirees of the Police and Firemen’s Retirement System.
Among the differences, the Treasury estimate used data from the July 1, 2017 actuarial valuation of the retirement system and assumed the reinstatement of the pre-2011 cost-of-living adjustment policy of 60 percent of the increase in the consumer price index. The bill, in contrast, would provide an adjustment of 100 percent of the increase in the consumer price index for qualified retirees with an annual retirement allowance not exceeding $75,000 (before the annual adjustment of the threshold), which increase is capped at 1.0 percent for retirees with an annual retirement allowance exceeding $75,000 (before the annual adjustment of the threshold).
In addition, the prior Treasury estimate assumed the reinstatement of cost-of-living adjustments for all Police and Firemen’s Retirement System members. The bill would provide the inflation adjustment only to retirees who have been receiving retirement allowances continuously for at least ten years, except for: retirees who are in deferred retirement; retirees with 20 to less than 25 years of service credit; and members of the retirement system who are hired 30 days after the effective date of the bill.
|
Section: |
|
|
Analyst: |
Assistant Legislative Budget and Finance Officer |
|
Approved: |
Thomas Koenig Legislative Budget and Finance Officer |
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).