Passing The Buck
"There's a bit of a reluctance to tackle the problem because it's going to be someone else's problem in a few years," Gallagher Benefit's Volk said. "Some think it's not a real liability, that it's an accounting thing."
New Jersey estimates its unfunded liability for retiree health is more than twice what it owes for pensions, according to state figures. The Garden State has paid more to borrow from the municipal-bond market after three credit evaluators cut its ratings in part because of expanding pension and health-care obligations. Moody's cited the growing cost of retiree benefits as a continuing fiscal challenge in reports last year.
The state's liability for retiree benefits separate from pensions has more than quadrupled since 2008 to $13.5 billion in fiscal 2011. Its combined unfunded obligation, at $59.3 billion in fiscal 2010, includes coverage for retired teachers.
Christie said he initially sought to cut retiree health costs along with changes for current workers. Instead, he said he left out raising retiree expenses to smooth passage of other changes, under a "principled compromise" with Democrats who run the Legislature.
Seeking Lower Costs
"By offering retirees more choice, we could potentially lower costs," Christie said last week in Trenton, the capital.
The law that resulted "illegally takes away benefits that school employees and others have already earned," Barbara Keshishian, president of the New Jersey Education Association, said of the changes in a response posted last year on the union's website.
During the 1990s, New Jersey's Legislature cut workers' required pension contributions at the same time it lowered the retirement age, without guaranteeing funds to cover the moves.
"We have structural problems in the pension system," Senate President Stephen Sweeney, a West Deptford Democrat who sponsored the law that changed benefits last year, said in September. "We had to fix it."
Setting Aside Funds
Massachusetts made progress toward covering its benefits costs by setting aside funds from a settlement with tobacco companies, according to CanagaRetna, of the Council of State Governments. The state plans to put away 10 percent of a $300 million payment to fund health-care costs for 10 years starting in 2013.