As you may be noticing, New Jersey is in a mess. The state has been run for years by the three Ds: Debts, Deferrals, and Dolts.
So it was ironic that an article titled States of Crisis for 46 Governments Facing Greek-Style Deficits last June included the following quotes:
“Lawmakers need to overhaul tax policy, underfunded public pensions and entitlement spending programs such as Medicaid if they want to establish long-term plans that will foster growth”
“States don’t have a choice anymore. These problems are going to require major surgery.”
Both were attributed to former New Jersey Governor Christie Whitman who spoke up again last week on the Colbert report answering why she though we got into this nightmare scenario with the states. Her answer:
Pensions!
Where were the bursts of laughter at that word being uttered by Christine Todd Whitman who, as governor, deliberately refused to pay into and even raided the pension ‘trust’ fund to balance a budget in 1997 through the sale of Pension Obligation Bonds that, according to Paul Mulshine, are only now being repaid and to the tune of $212,177,677 in 2009? Whose artificial propping up of the plan ushered in the 9% benefit enhancements of 2001? Whose removal of the pension cost item from budgets made it politically impractical for any future governor to make more than token contributions?
There were plenty of yucks later in the Colbert interview at the thought of all the deaths, rapes, and robberies Camden residents would be subject to as half their police and one-third of their firemen are laid off and at Whitman confusing the federal government with the Federal Reserve (though the ending credit noise likely stepped on the cascades of laughter over that inanity). There was also the revelation that Christie Whitman would be willing to come back and govern a state in these times.
Maybe she has a point. Who better to come up with the phony budget gimmicks and dodgy fiscal schemes that were the hallmark of her administration? Politicians these days seem to have run out of responsibility-evading ideas. Surely, if anyone, Chrisite Whitman should be able to find a way to have us save the jobs of our teachers, firefighters, and police and have future generations pay them.
Burypensions Blog 
Posted by muni-man on January 24, 2011 at 5:52 pm
JB, granted Whitman (helped by many others both Dems and Reps) stiffed the plans over the years, but my contention is the cost of the plans is prohibitive as outlined below. I’m certainly not telling you anything you don’t already know. You could more than double, the amounts listed below if this was a NYC teacher. This whole public benefit thing is completely out of control. It’s gonna change one way or the other, either by reduced benefits or by forced liquidations.
(1) FV OF AN ORDINARY ANNUITY
Teacher kicks in $200/mo. (average) over 30 years and it earns 5% along the way (not the 8.25% ether assumed by the plans). The value of the teacher’s contributions with interest earned monthly as contributions are made comes to an FV of $166,452 after 30 years.
Not very much overall.
A = Annuity/Mo. $200 INPUTS
A = Annuity/Yr. $2,400
I = interest/mo. 0.004167 5.00%
N = # months 360 30
FV $166,452
(2) PAYMENTS FROM A PRESENT VALUE; FV = $0
The teachers retires at 55 after 30 years on a $39,986 pension and lives to age 80. The
PV needed to fund that pension over 25 years is a pretty tidy $570,000.
A = Annuity/Mo. $3,332
A = Annuity/Yr. $39,986
Age 80 INPUTS
I = interest/mo. 0.004167 5.00%
N = # months 300 25
PV $570,000
(3) TAXPAYER FUNDED PORTION OF THE PENSION
The difference between (2) and (1) is what the taxpayer has to cough up to fund the pension,
in this case $403,548. So the teacher actually kicked in $200 x 360 months = $72,000,
the contributions earned another $94,452 in interest equaling the $166,452 teacher piece,
and the taxpayer has the privilege of paying $403,548/$72,000 = 5.60 times what the teacher
paid in, in order to fund the teacher’s pension. That’s totally unsat. for taxpayers, and is largely the reason pols stiffed the plans – THEY’RE FAR TOO COSTLY.
A = Annuity/Mo. $485
A = Annuity/Yr. $5,819 INPUTS
I = interest/mo. 0.004167 5.00%
N = # months 360 30
FV $403,548
Posted by Javagold on January 24, 2011 at 6:37 pm
Muni,
1. Now multiply that by 800,000 public employees
2. Now figure out how many of those checks are being sent OUTSIDE the state borders
3. now figure out the cost of the annual health care benefits for employee AND their family FOR LIFE
So why on Gods green earth would the other 7 million people allow this ponzi scam to continue and for them to be responsible for it to continue
Posted by Larry Littlefield on January 24, 2011 at 6:52 pm
Here is my concern. Everywhere the pension disaster is a combination of inadequate employer contributions, inadequate employee contributions, and retroactive pension enhancements.
My view is New York City has the guiltiest unions and the least guilty services recipients and taxpayers. With the exception of the Giuliani for Senator deal year (and he didn’t even run), when he exchanged eliminating the employee contribution (just 3 percent for those working at the time) after 10 years of service for cutting the city contribution for a year or two, we’ve paid and paid.
New York’s state system, which covers local governments outside the city, had no contributions for several years. I still can’t understand how the city system is as bad or worse off than the state, given how much more city taxpayers have paid in as a share of total payroll for so long. Are we still paying for Lindsay, or something?
Posted by muni-man on January 24, 2011 at 8:27 pm
It’s axiomatic – Pols (usually Dems/libs) + unions = state & big city fiscal disasters nationwide.
Posted by Tough Love on January 25, 2011 at 1:00 pm
John, Thank you for the details on the NJ Pension Obligations Bonds (via the link). From that link, it seems clear that the Pension Trust was in no way ‘raided” but benefited to the tune of $2.2 Billion of funding which it would have otherwise likely not received. Also, as you pointed out, (and as ridiculous as it seems … since the Trust received the Bond proceeds) repayment of the Bond interest & principal is an obligation of the STATE, not the Trust.
So, why are you assisting Public Sector Unions in continuing the MYTH that theTrust was in some way “raided” …. by saying in this article …”even raided the pension ‘trust’ fund to balance a budget in 1997″?
We need to put an end to this myth …. not assisting in the continued spreading of misinformation.
Posted by burypensions on January 25, 2011 at 1:25 pm
Whitman did put money in the plan in 1997 though it was money she got from taxpayers in 2009 and later (i.e. us).
What I meant by ‘raiding’ was in eliminating contributions. Had she made her ARCs and taken that money right out it would have been considered ‘raiding’ by anyone’s definition. What she did was usher in the era of ‘full funding’ for public plans (a ridiculous concept in the public sector) that allowed her not to go through the charade of having to put the money in only to take it right out. She, and governors after her, simply didn’t put it in with the tacit approval of the cowed actuaries. To me, that’s ‘raiding.’
Posted by Tough Love on January 25, 2011 at 1:49 pm
John, Thanks for the quick reply. You (and now I) understand the details, but it would take more than the fingers on 2 hands to count the times I have read comments from Civil Servants adamant that trust funds were WITHDRAWN, and then claiming that these “stolen” funds need to be repaid before they compromise on benefits. Yes, there is strong argument that funds not PAID-IN that should have been IS a debt that needs to be addressed, but there is a BIG difference between missed CONTRIBUTIONS and funds WITHDRAWN.
Posted by burypensions on January 25, 2011 at 1:58 pm
I don’t see a difference. How is Christie saying he’s not paying in $3.1 billion any different than him paying the $3.1 billion and then taking it out the next day?
A subtler point is that the $3.1 billion bill he ignored is a grossly understated amount provided by a compromised public plan actuarial community. That bill should have been about $7 billion if actuaries weren’t working in cahoots with politicians to defraud either the public or public workers, depending on who winds up paying for their dodgy numbers.
Posted by Tough Love on January 25, 2011 at 2:57 pm
At the very least, “withdrawing” it would likely be illegal, while not contributing (while unethical) is not illegal.
Posted by burypensions on January 25, 2011 at 3:48 pm
But who has been defining what is ‘legal’?
Posted by Taxedtodeath on January 25, 2011 at 2:13 pm
Posted by Taxedtodeath on January 25, 2011 at 2:17 pm
You nice little people, pay your taxes, the firemen, cops and teachers need new boats and campers. lol
Posted by Tough Love on January 25, 2011 at 3:12 pm
John, Another subject…
As an actuary, it’s clear you’re frustrated by the lack of adequate funding of these Plans. What I see in most of your blog articles is a focus on this point, very rarely addressing the fact that ….. I’m going to save some time here, and just quote from a comment I made elsewhere …
“AT EVERY (yes EVERY) pay level (NOT just the higher earners) the employer (meaning TAXPAYER) paid-for share of the TYPICAL Civil Servant’s retirement package (pension and subsidized retiree healthcare) has a value at retirement that is 2 to 4 times greater than the employer paid-for share of the pension provided to the comparably paid Private sector worker retiring at the SAME age and with the SAME years of service …. and the 2 to 4 times rises to 4 to 6 times for safety workers due to their even RICHER pensions. Sure it’s hard to adequately fund these RICH pensions….. because RICH pensions are VERY VERY expensive ! Reduce the pensions, for CURRENT (yes CURRENT) workers to a level comparable to what Private Sector workers get and appropriate funding might be possible.”
Why don’t you advocate for significant pension reductions for FUTURE years of service for CURRENT employees? Even WITH a 50% reduction (not the 9% rollback Christie is calling for) Public Sector pension accruals would STILL exceed those of the typical NJ Private Sector taxpayer. The current benefit structure is simply too generous, unsustainable, and grossly unfair to taxpayers.
Posted by burypensions on January 25, 2011 at 3:56 pm
Because even that wouldn’t be enough. Coincidentally they tried that with a union plan I’m consulting on. Just came in one and cut future accruals in half. It won’t help. That plan is going down, especially with all the lawyers, actuaries, and investment advisers picking at the carcass.
Only solutions to keep NJ plans viable are either to (a) cut benefits for all, even retirees, by about half or (b) start putting in $10 billion a year into the plan. As a taxpayer I do have dog in this fight but it’s minor compared to my other dog, namely the debasement of my profession that these public plan actuaries continue by acceding to the whims of their paymasters.
Posted by Tough Love on January 25, 2011 at 4:11 pm
If you feel that strongly, and can demonstrate improper conduct, why not recommend a disciplinary sanctions to the AAA?
Posted by burypensions on January 25, 2011 at 4:27 pm
We have the ABCD (Actuarial Board for Counseling and Discipline) which is theoretically supposed to hear complaints but, based on past experience, the idea of bringing this to them is laughable. Best I can do is agitate at the Enrolled Actuaries conference. At the next one (late March) they will have a General Session on public plans so I will get a better sense of where we stand as a profession on this.
Posted by Tough Love on January 25, 2011 at 8:02 pm
John, Just a thought … going forward, advocating for substantially reduced BENEFITS is important, because we BOTH know that the hardest part to take away will be benefits accrued for PAST service. Therefore, the sooner the formulas are reduced, the smaller these “locked-in” benefits will be.
The above is notwithstanding that you think the end is so near it likely won’t matter.
Posted by burypensions on January 25, 2011 at 9:29 pm
The proposals for benefit reductions are out there. Of course they’ll say the promised monthly benefit won’t be reduced but if they start charging
retirees 30% of their health insurance that will take a bite out of the net check. Both pensions and health insurance premiums come out of the
same fund (though there’s technically no OPEB trust fund) so they’ll try to slow down the leakage by making retired cops (et. al.) pay for their health care.
Posted by art on January 25, 2011 at 4:05 pm
All of these comments are absolutely correct, but the question many times was asked “how could the people let this happen”. I live in Conn. but we are NJ divided by 3 in almost every ratio. I was on this as far back as 1988 when we were debating an income tax and i used to write letters and go to town meetings and talk about it- and was rebuffed by many “friends” as a crybaby sour grapes person. I asked a (now long dead) mentor- “Why doesnt the average guy driving to TIE Communications(a long dead company) in his Chevette stand up with me and support change?” . He said “they wont because if they agree publically people will think they are doing poorly and just jealous and it would cause loss of face”. I believe that is true and even now there should be much more outrage but i am glad to see it is getting traction and visibility
Posted by Tough Love on January 25, 2011 at 9:46 pm
John, Switching the Healthcare premium to a % of the benefit’s cost rather than the current 1.5% of pay is a biggie, not only because they will pay more, but tying the employee premium to the benefit’s cost means they’ll have some “skin in the game” and likely become more conservative healthcare consumers …. and choose cheaper Plans (and use less services).
The other biggie, if Christie can pull it off …. PERMANENTLY … is eliminating the 3% COLA. For the 60 year old retiree, that lops off about 30-35% of total plan costs. And then retirees will know a bit more about how the rest of us (the Private Sector ) lives in retirement.
Posted by muni-man on January 26, 2011 at 10:55 am
Cap the employer’s healthcare contribution to no more than 50% of a BASIC policy only not to exceed $6K/yr., adjusted by the lesser of 4% or the rise in the CPI-Healthcare index annually. They want cadillac coverage, they pay for it. It’s not like they’re gonna go anywhere – if they’re vested they’ve all got the golden handcuffs on and will stay put. They’re all petrified of the private job market anyhow. Cap
pensions at $75,000 too if they don’t already have credits over that amount. Again, they aren’t gonna go anyhwere.
Posted by Tough Love on January 26, 2011 at 2:07 pm
It’s a delicate balance putting limitations on pensions & benefits with LEGAL changes …. will definitely be settled in the courts, even for the more modest reductions. Civil Servants will put up a HUGE fight, and use all the potitical influence they can muster (or “buy” with campaign contributions … business as usual !).
Posted by muni-man on January 26, 2011 at 2:40 pm
It’s not gonna be business as usual in most states, although I do believe CA, NY and IL are hopelessly in the unions’ pockets forever until they crash.
Many other states are definitely going to change things in a big way though. The Fed is gonna get involved ultimately and give the recalcitrant states a gentle push off the cliff by demanding (a) they either reduce plan benefits to get into balance or (b) liquidate them, because they ain’t gonna get Uncle to bail them out, that’s for sure.
Posted by Javagold on January 26, 2011 at 5:18 pm
how can we all help and do our part in making the pension ponzi scams collapse as QUICKLY as possible…….until the RESET button is pushed, we will continue to be zombies