Can Hybrid Pensions Work?

One of the proposals being considered by Governor Christie’s Reform Commission is a so called hybrid pension system, that combines the public pension with an employee contributed private retirement plan. This would reduce the State’s pension obligation to it’s employees without eliminating it. WIth the State’s unfunded pension obligations growing, is this an option worth exploring?

For public employees changes to the pension system are terrifying. They have worked their whole careers knowing they had the prospect of a secure retirement ahead of them. However, financial troubles not entirely of their own doing have put this security in jeopardy. So a system which keeps part of their security intact and helps secure the system for the long run is an alternative that needs to be considered.

Federal employees have been operating under a hybrid system since 1986. Any employee that joined the federal workforce after that date gets a reduced pension and number of employee-contributed funds to choose from. The employee contributions are also matched by the government. All employees both contribute and get Social Security payments. If an employee contributes a decent amount to the plan, a decent retirement income can be assured.

So yes, a hybrid pension plan can both help secure a pension system and provide a secure retirement for employees. However a certain set of circumstances must be in effect. First the State must match employee contributions to any retirement plan. This will give a multiplier to the employee contribution adding to the bottom line. Second, the salaries of State and Local employees must be increased if necessary so the contributions employees make to their retirement plan will not take that big a bite out of their current standard of living.

I urge the Pension Review Commission to seriously consider the hybrid proposal but to do so in a way that takes into consideration the current and future needs of of our State and Local employees. I will stress also that there is no way the total privatization of New Jersey’s government employees can be considered acceptable.