Retiree benefits last year amounted to 11.2% of the fund's $25 billion value, compared to 3% a decade earlier. Payments are on track to exceed 11% of assets again this year, state budget documents say.

Prescription For Health

To remain healthy, the New Jersey teachers fund should pay out no more than 9% of its assets each year, Scott Porter, of the Philadelphia office of Milliman Inc., the fund's actuary, told trustees in February. He said benefit costs will rise to $4 billion a year within a decade, making it questionable the state will achieve its assumed 8.25% annual investment gain.

"As baby boomers retire and the benefit payments increase, that's going to keep the market value of assets from growing substantially," he said.

With such prospects, U.S. governors and lawmakers are proposing lower benefits. Colorado, Minnesota and Michigan are in court defending cuts, including a reduction in annual cost- of-living increases imposed on retirees during the last year.

In Connecticut, where benefit payments rose to $2.7 billion this year from $2.1 billion in 2007 as assets lost almost $5 billion in value, outgoing governor Jodi Rell wants to eliminate guaranteed pension payments for future employees. New Jersey's Christie plans to revoke a 9% increase in benefits awarded in 2001.

Advocates for pensioners say such strategies illegally renege on promises to workers. Politicians themselves caused the problem by failing to make required payments, they say.

"This has been in motion for a long time," said John Stember, a partner at Stember Feinstein Doyle Payne & Cordes in Pittsburgh, which represents retirees in six states challenging rollbacks.

"The state is making a compelling argument based on a set of facts it's confronted with now, but that it didn't necessarily have to be confronted by," he said.

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