RNSP (3) Drop-Dead Date for New Jersey Plan

During 2021 New Jersey public pension plans would have run out of the money at a time when they will need to pay retirees about $25 billion annually in pensions.

Here is how I arrived at that date and number and read further for my justifications on the assumptions.

4% Earnings Gains

I start with $74 billion in ‘official’ assets taken from the June 30, 2010 CAFR, specifically the balance sheet and income statement of all the plans.  Note that $4 billion of that consists of contributions receivable from past deferrals.  Having to pay out what should be $8 billion in the next year requires a large portion of the assets to be liquid making the 8.25% interest gains of the past a fantasy.

5% Contribution Increases

Public employees in New Jersey put in about $1.8 billion annually toward their pensions through deferring a percentage of their salaries.  As salaries stagnate with caps on increases and older, higher-paid employees get pushed off payrolls and onto retiree rolls it is difficult to imagine this funding source rising significantly absent increases in those contribution percentages (which they’re trying to get).

The Annual Required Contribution is in the $5 billion range though the state’s portion of that has been (and continues to be) routinely ignored.  With no outside discipline, budget constraints will allow only token increases in government contributions.

10% Payout Increases

Without the elimination of  Cost-of-Living-Adjustments (which they’re trying to do) the wave of new retirees looking to cash in will combine with better-than-expected life expectancies of a population with lifetime health insurance to easily produce double-digit increases in annual pension payouts.

2 responses to this post.

  1. Posted by Muni-man on November 10, 2010 at 7:28 pm

    JB, I’m a little confused. On pg. 5 of the CAFR, it states Employee Pension Contributions were $2.1B and Employer Contributions were $6.1B. The last para. on pg. 5 says the state did not make any pension contributions for FY2010. Does that mean that the $6.1B in Employer Contributions were solely from the towns and that if the state kicked in their $3.1B portion, especially for the teachers, the total would have been $9.2B? That’s a taxpayer-to-employee contribution ratio of $4.38-to-$1. If so, that coupled with the annual Healthcare Premium increases on pg. 5 ranging from 18%-23%, clearly shows how out-of-control this whole thing really is. Man, talk about the Augean stables – this pension/benefit s***house is worse by a magnitude of order or so.

    JB, if it’s not too much trouble, could you approximate the overall taxpayer-to-employee contribution ratio that would be required to keep all of NJ’s plans fully funded (assuming they were fully funded right now). I figure it has to be at least around $6-to-$1, but I don’t know
    how to arrive at the number. That’s a crucial figure. Thanks.


    • The way to think of it is how much is being accrued each year and what the present values are.

      As of 6/30/09 the ‘official’ accrued liabilities were $135 billion (using their low-ball numbers).
      As of 6/30/08 it was about $126 billion.
      Nothing much changed except for new-hires so I would expect another $10 billion in liabilities
      to be accrued. That, theoretically, can be covered by 3 sources: (1) earnings which are down
      since there is less to invest; (2) employee contributions; and (3) gov’t contributions.
      Then there are the prior year shortfalls (46 billion ?) to be made up from those 3 sources as well.

      As the plans are now I figure about $10 billion a year should be going in. I don’t see employees
      being able to come up with more than $2 billion and the state and local governments are crying about
      the mini-contributions they are told to put in now.

      As a radical step we might see another revenue stream (i.e. docket fees going into the JRS) or a toll-hike
      dedicated to the pensions. In looking through the valuations I see a handful of other plans getting this
      outside income.

      Bottom-line: something significant needs to be done and, so far, Christie (except for that COLA elimination)
      has not come up with anything.


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