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City of Passaic v. Consolidated Police and Firemen''s Pension Fund Commission

Decided: March 28, 1955.


On certified appeal from the Law Division of the Superior Court.

For affirmance -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For reversal -- None. The opinion of the court was delivered by Vanderbilt, C.J.


The question here presented is whether various sections of N.J.S.A. 43:16-5, as amended by the Laws of 1952, are constitutional.

The statutory amendments involved, which will hereafter be set forth at length, result from legislative efforts extending over many years to establish a workable pension and retirement system for policemen and firemen. In 1885 the Legislature passed the first public pension law permitting cities to provide pensions for policemen who had 20 years of service or who had attained the age of 60 years, or who had become incapacitated. In 1888 a pension law was enacted for firemen. Between 1887 and 1917 there were 26 different laws passed, all relating to the retirement provisions for policemen and firemen, and by 1918 55 funds had been established covering 3,000 out of a total of 3,700 policemen and 2,150 of the State's 2,300 paid firemen. Generally speaking, the various pension funds had several sources of revenue such as compulsory contributions of members and municipalities based on a certain percentage of the members' salaries, miscellaneous revenues from various municipal sources, and the proceeds from social events sponsored by pension fund members. These sources of revenue proved quite unsatisfactory and most funds soon experienced alarming deficits, largely because no attempt was made to have the revenues paid into the fund relate to the ultimate cost of the pension benefits.

In 1917 the Legislature created a Pension and Retirement Fund Commission to study the whole pension system, and its report made public in 1919 revealed the need for the institution of a sound actuarial system and the building up of adequate reserves:

"Just as in an insurance company every policy holder is a liability, a 'risk' on the company, so in a pension system every employee, even the youngest employee, is a liability, a 'risk' on the system, which can be actuarially determined. In order to be able to fulfill its promises, a sound pension system must plan far ahead, always some sixty or more years into the future. It must determine with the aid of an actuary, as the insurance companies do, the amount of aggregate

liabilities to all its present members which would mature at different times in the future. Then it must determine what total assets it will realize in the future from the contributions which its present members will make during their lives and from other revenues. And it is only if the assets ascertained in this way equal the liabilities so determined that a pension system can be considered financially solvent.

If the system provides from the very outset an adequate reserve against its total liabilities, then, with the aid of this reserve, it can carry the tremendous load of the future without breaking down. Unless an adequate reserve is provided, there is no assurance that the system will be able to keep all its promises."

In 1920 the Legislature passed a single uniform retirement law, chapter 160 of the Laws of 1920, which was incorporated in the Revision of 1937 as R.S. 43:16-1 et seq., covering all policemen and firemen retirement funds then in existence as well as those to be established later by the voters of any municipality by referendum. This act vested administration of existing funds in a local commission which in the case of municipalities having both policemen and firemen funds consisted of the chief municipal executive, the chief financial officer, a policeman, a fireman, and a lay citizen selected by the other four. Contributions to the fund were made by each member and by each municipality, while the fund also received revenue from miscellaneous state sources including a part of the 2% tax paid by foreign insurance companies. The statute, however, did not carry out the basic recommendations of the Pension and Retirement Fund Commission for it failed to make proper provision for the cost of future pension benefits.

Since 1920 various studies have been made of the pension funds for policemen and firemen and many amendments have been made to the 1920 act, all of which were unsuccessful in placing the funds on a solvent basis. In 1950 at the Governor's request the State Department of Banking and Insurance made an actuarial evaluation of the funds covered by the 1920 Act and found that as of July 1, 1949 some 200 funds had a combined deficit of $209,110,636:

"It will be noted that the deficits are large. The principal reason for this is the inadequacy of contribution rates in the past, although the upward adjustment in salaries in ...

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