The July 1, 2013 actuarial reports for the New Jersey pension plans are coming out and if you are of a mind to explain to your teacher friends why they will soon be seeing Detroit-type ‘adjustments’ to their pensions just point them to page 8 of the Milliman report for the Teachers Plan – TPAF – (Buck does the valuations for the other 6 plans in the system) titled ‘Risk Measures.’ Search the Buck reports and you won’t even find the word ‘risk’ mentioned but Milliman beginning with their July 1, 2009 report thought it a good idea to mention that…..
Robert Mahon and Thomas Butler are being villainized for collecting a New Jersey state pension while working as interim school superintendents yet, by all accounts, they are not breaking any rules by doing so. They put in their time, made their salaries, and want to continue to serve and apparently there are people who believe they are of service. They are not the problem with the New Jersey state pension system.
The real problem are those politicians who oversaw the bureaucrats who made the rules and the actuaries who lied about the cost of those benefits. Witness those specimens of chimerical proselytizing: the annual New Jersey actuarial reports, three of which were released today*.
Governor Chris Christie has no problem lecturing those in California who “like to call themselves leaders”:
or questioning “what the hell we are paying President Obama for”:
But when it comes to reforming public pensions in New Jersey according to PolitickerNJ:
In theory if you are putting away enough to cover benefits accrued during the year and paying off any past liabilities over some period of time (30 years in NJ) then your unfunded liability should be going down and your funded ratio going up. That’s not the case for New Jersey pension plans and it will not be the case when the July 1, 2013 valuation reports are released this coming week.
As of July 1, 2012 the unfunded was reported to have increased to $47.2 billion from $41.7 billion as of July 1, 2011 with the funded ration dropping from 67.5% to 64.5%. This year those numbers will likely be $52 billion (as already leaked) and around 61%. Is this an anomaly?
No, it is by design. Public pension funding is all about getting the contribution as low as possible and a primary tool is the funding method (per the valuation report):
The Projected Unit Credit Method was used as required by Chapter 62, P.L. 1994 as modified by Chapters 115, P.L. 1997 and 133, P.L. 2001.
Logically straight Unit Credit should be used since that values benefits accrued during the year but PUC has the advantage of developing much lower current-year contribution (if interested here is a brief powerpoint explanation) but in the case of New Jersey it also develops some bizarre Normal Costs.
Governor Chris Christie seems to have finally gotten it: the New Jersey pension system is headed for an ugly crash – but his campaign to scare stakeholders straight, as reported today, makes his handling of Bridgegate appear adriot by comparison.
In June, 2011 New Jersey made some modest reforms to the state’s pension system and also took away cost-of-living-adjustments (COLAs) on payouts. At the time:
COLAs will come back if the judicial system in this state works in any responsible manner (translation: 50/50 chance) essentially gutting those 2011 reforms and yet, as we found out earlier this afternoon, more needs to be done:
The New York Times reported today that a “blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.”
Basically the report made four very sensible recommendations that most citizens would be amazed had to even be recommended. Anyone without ulterior motives should have no problem agreeing with three of them:
- a plan’s funding goal should always be 100 percent
- disclosure of a “standardized plan contribution” that would be calculated by all plans using the same discount rate and funding methodology
- not using funding instruments that delay cash contributions (i.e. Pension Obligation Bonds)
Then there is the tricky, though no less valid, recommendation: