Switching future New Jersey public workers to a 401(k)-type retirement plan, a move Governor Chris Christie is considering, would worsen the pension system’s unfunded liability, according to advocates for the poor.

Closing the existing defined-benefit plan to new enrollees would involve $42 billion in transition costs, according to a report by New Jersey Policy Perspective. Later hires, who would make their own investment decisions rather than leave them to professional managers, would risk retiring with less money, the Trenton-based group said today.

Christie, a second-term Republican, has said his 2011 overhaul of public pensions and benefits didn’t go far enough to contain costs. Though he hasn’t specified what proposals he plans to make, he has spoken of higher employee contributions and retirement ages, and switching workers with fewer service years to a 401(k)-type model.

Moving employees to defined-contribution plans failed in three states that tried it, and was rejected in 13 others, including California, New York, Pennsylvania and Texas, according to the Policy Perspective study. Its author, Stephen Herzenberg, an economist for the Keystone Research Center in Harrisburg, Pennsylvania, based his cost estimate on studies conducted in that state last year of plans with similar characteristics to New Jersey’s.

“There is no flaw in the basic design of New Jersey’s defined pension plans, as long as these are managed well,” Herzenberg wrote.

Skipped Payments

New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion after Christie compelled state workers to pay a bigger share and promised to make more payments from the state. It then grew to $47.2 billion in 2012 as he made only partial contributions to balance the budget.

Though Christie signed a law to make seven annual extra pension payments, he went back on his promise in June, committing to just the actuarially required minimums and cutting $2.5 billion for fiscal years 2014 and 2015.

New Jersey now has a $90 billion unfunded liability for retirement and health obligations, according to a Sept. 25 report by a 10-member panel that Christie appointed. The panel is scheduled to release its full findings, which will include recommendations, this month.

The state’s escalating benefits burden has been cited by credit analysts in eight downgrades during Christie’s administration, a record for a New Jersey governor. At the 2014 Peter G. Peterson Foundation Fiscal Summit in Washington in May, Christie said it was time to “stop the insanity of a defined pension plan.”

Enrolling all members in a defined-contribution plan isn’t feasible, state Treasurer Andrew Sidamon-Eristoff told lawmakers during budget hearings earlier this year, because payments from current employees are helping to sustain retirees. The state was examining a hybrid of traditional and 401(k)-type benefits, he said, such as that adopted by Rhode Island.