The Flaw in New Jersey’s Public Pension System

In response to what is likely to be a recommendation by the commission studying New Jersey’s public pension system to abandon defined benefit plans for public employees a couple of union-backed think tanks released a report today warning against such a move on the argument that:

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

They are dangerously mistaken.  There is a fatal flaw.

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Favorable Conditions for New Jersey?

According to Bloomberg the “New Jersey’s Economic Development Authority is selling $525 million of bonds this week for school construction in the state’s poorest communities, the largest such sale since Governor Chris Christie took office in 2010.”

But why bond so much now after eight consecutive downgrades of New Jersey’s credit rating?

Chris Santarelli, a spokesman for Treasurer Andrew Sidamon-Eristoff, said the program needs money and that the market conditions “seem favorable” for the state.

“We are aware the market watches New Jersey very carefully,’” he said. “Our concern is to ensure that our financing team provides as perfect market execution as possible. We expect a positive outcome for this pricing.”

Back on September 5 Fitch downgraded New Jersey’s overall bond rating from A+ to A but for this issue they went even lower to A- with the outlook still negative on September 24 and it is hard to find anything favorable in their press release (excerpted below with emphasis added):

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NJ Attorney General: Defender of Christie’s Crimes?

The concept of lawyers bending the law to their clients’ whims is fascinating to me.  We have that in Union County where lawyers told the freeholders it was OK to steal from the Open Space trust fund and that the county’s seal could be trademarked.  Obvious blunders only one of which has been corrected.

On the state level, Paul Mulshine did a piece today about how the New Jersey Attorney General’s office has to defend Governor Christie’s stances of convenience on sports betting which recalls the insanity of his position regarding the 2011 pension funding law staked out in court, namely that it was completely unconstitutional.
Three things that I, and at least one other person, take away from all this:

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Not Goetting It

Louis C. Goetting makes $140,000 per year working as an aide to Governor Christie.  Today is his last day since he may not be much of an aid to Governor Christie in the philosophical battle over pension reform in New Jersey.

You see Louis C. Goetting is also a retiree in the New Jersey Pension system getting $88,860 annually and he received $1.1 million from two severance payouts and an early retirement deal.  Mark Lakerqvist at headlines his blog today:

Christie’s biggest double-dipper quits on cusp of NJ pension debate

I do not see double-dippers as the problem but I do see how others would and how this resignation ties into what the Pension Study Commission might come out with.

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Trust Christie’s Pension Panel – On This irresponsibly editorialized today not to trust Christie’s Pension Panel report:

Gov. Christie’s hand-picked bipartisan commission on pension reform released the first of its reports last week, and the panel predictably painted a bleak picture of New Jersey’s future benefits burden and the need for significant changes to the system. That of course closely echoes the theme of Christie’s “No Pain, No Gain” middle-class-bashing summer tour, in which the governor emphasized over and over again that public workers need to give back more of their benefits to help the rest of New Jerseyans, including the wealthiest residents in the state.

Next month, the commission is expected to release recommendations on future reforms. Bet on Christie liking most of those recommendations. Public workers will feel differently. That’s what happens when the governor plays with a loaded deck.

As if Christie was manufacturing this pension crisis so he could score easy points by solving it with his preferred policies.  It would be like bringing in thousands of wind machines to replicate Hurricane Sandy so he can don his campaign fleece and anticipate more federal disaster aid to dole out.

If anything the Panel understated the crisis by accepting official numbers though two words (that they even chose to highlight)  in a paragraph on page 5 tells you what they really think (and should be saying more forcefully):

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Pension Panel Parameters

Want to lose weight without diet or exercise? That pretty much leaves disease! (I think that about sums it up)

Dave Letterman

Thomas J. Healey, chair of the ‘bipartisan’ New Jersey Pension and Health Benefit Study Commission,  had an op-ed piece in the Star-Ledger today in which he gave away the recommendations that his commission was obviously told NOT to make:

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Not Scaring Anybody

Nobody is any more worried now than they were before the New Jersey Pension Study Commission report came out.  Yes, “[t]his problem is dire and will only become much worse if meaningful steps are not taken quickly” but what does that really mean to anyone?

First off, the situation could become much worse even if meaningful steps are taken if those steps are stupid (i.e. arbitrarily reducing contributions that will need to be paid later or cutting COLAs that will need to be reinstated).

To understand the sad state of the New Jersey retirement system it is best to look at some numbers (those not susceptible to manipulation) from a valuation report (June 30, 2013 TPAF).

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