Should you retire now, NJ public employee?

Participants in the New Jersey Public Employee Retirement System (PERS) will likely have their employee contribution rate raised to 8.5% of pay and might be paying as much as 30% of their health care premiums if they choose not to retire as of a certain date.   I got a cold call at work this week from a PERS member thinking about retiring because of this and offering to pay me to help him with the numbers.  I wondered myself so I ran some numbers for my own benefit:

Current Salary: $100,000

Years of Service: 25

Age: 50

The handbook says you can retire now at 80% of your accrued benefit or keep working until age 60 at an unreduced benefit calculated as follows:

Go now: $100,000 x 25/55 x .8 = $36,364 annually now

Stay: $100,000 x 35/55 = $63,636 in ten years

Using factors for determining lump sums in the private sector (January, 2010 segment rates and the AMT10 mortality table if you must know) the respective values of these payout patterns now are:

Go now: $36,364 x15.3543 = $558,344

Stay: $63,636 x 7.35965 = $468,339

This $90,005 difference surprised me and is due to the heavily subsidized (i.e. bogus) early retirement factors.  But it gets worse when you consider:

  1. 10 years of paying either 5.5% or 8.5% of salary into the plan would be valued at $43,000 or $66,000 respectively based on a 6% discount rate.
  2. Under Sweeney’s proposal current retirees would not be expected to contribute to their health care premiums but future retirees would be expected to contribute a fixed amount each year — between $2,280 and $5,700, based on pension level.  This is a backdoor way of reducing pensions for anyone who doesn’t get themselves classified a ‘current retiree’  and would be valued at around $100,000 in this example.

So that brings us to about a quarter of a million dollars in benefits that our example would be giving up by not retiring now.  But it gets worse when you consider:

  1. You would be getting that money and your calendar is free.  You could get another job selling your acquired experience and the fact your new employer will not need to provide you with health benefits as New Jersey taxpayers will be picking that up.
  2. If you think this plan will be around in 10 years you possess a dangerous ignorance of both math and New Jersey politicians.

47 responses to this post.

  1. Nice analysis. It should scare the pants off the regular taxpayer. It’s almost too much to comprehend on a statewide level. Either the taxpayer is finished or Unions are finished. I prefer the latter.


  2. Posted by javagold on February 20, 2011 at 2:48 am

    the civil war is here….be prepared, stay safe and good luck to the good guys


  3. Posted by javagold on February 20, 2011 at 2:51 am

    the moral of this post seems to be, but wait it gets worse, it gets worse, it gets worse

    just wait until the run on the pension ponzi scam hits warp speed, that will be the worstest


  4. Posted by Larry Littlefield on February 20, 2011 at 10:51 am

    The only caveat I would have is that the employee in question may not be able to get a job at a comparable salary in the private sector at their age and in this economy. If they would be unemployed or earn less, you have to factor that in — a $100,000 job for ten years is $1 million, and it could be held for longer since a public employee with that much seniority is unlikely to lose it.

    On the other hand, as you say, a retired public employee competing in the labor market with health insurance in hand certainly has a huge advantage in competing with a laid off private sector worker in late middle age. Particularly for a small company where one employee’s effect on average age could really change the health insurance bill.


    • Posted by javagold on February 20, 2011 at 12:08 pm

      this is an oftern overlooked scenario, actually a brilliant scam by the public pigs….they have gamed the system to such an advantage that they have actually been able to have the taxpayers pay for their health benefits for life and THEN use that advantage against the same unemployed taxpayers who are comepeting for a job…..disgusting YET brilliant


  5. John:
    I am not clear on one important point. Some PERS members have their health insurance paid for by county government, not the state. These members do not participate in the bankrupt State Health Benefits Plan. Is Sweeney looking for EVERY PERS member to contribute as a retiree for health benefits even if the tab is not being picked up by the State but rather by the county or some other local government?


    • Posted by javagold on February 20, 2011 at 12:08 pm

      i think this is an oftern overlooked scenario, actually a brilliant scam by the public pigs….they have gamed the system to such an advantage that they have actually been able to have the taxpayers pay for their health benefits for life and THEN use that advantage against the same unemployed taxpayers who are comepeting for a job…..disgusting YET brilliant


    • I’m guessing it would be a piggy-back thing. I don’t think that the state can force a county that just promised lifetime health benefits to 700 non-union employees to back off on that deal since it’s not part of SHIP but the county, if they so choose, might be able to reopen the issue and get them to pay something to placate the union employees in SHIP who would likely be grumbling about paying that 30% while these non-union employees (department heads and such) wouldn’t be.


  6. Posted by meep on February 20, 2011 at 4:06 pm

    First, new hires get hit.

    Then current employees.

    But eventually the current retirees will also get hit.

    If it’s unsustainable, it will not be sustained. By definition.


    • Posted by javagold on February 20, 2011 at 4:49 pm

      the funny thing (actually quite sad) is why the new hires who had nothing to do with any of the pozi scam, would take the first and biggest hit….its amazing that they will hold on to their ill gotten gains until the very very end….but no matter, the end will come for all


  7. John:
    I respect you immensely, however, your guess may be wrong. When Christie implemented his 1.5% contribution for State Health Benefits, the bill changed when it left the committee and all government workers who were not currently operating under a collective bargaining agreement at that time automatically had the 1.5.% deducted from his or her paycheck. This occurred even if these workers did not participate in the State Health Benefits Plan. Also, remember, Sweeney’s bill emphasizes that health benefits are not a non forfeitable right as is the pension. Sweeney states that health benefits do not enjoy the non forfeitable status for retirees as well as for current workers.


    • Thanks for the information but I’m not sure which guess of mine you’re referring to as wrong.

      I’m confused as to whether these health benefits can really be taken away. For example, Union County last week obligated us taxpayers to pay lifetime health benefits to 700 non-union employees (since they haven’t gotten raises for 3.5 years). Wouldn’t that be a contract that the state could alter? That is, if the state can come in and say those 700 would have to pick up 30% of the cost of those benefits then what’s to stop the state from coming in and saying those 700 have to pick up 100% of that cost, effectively taking it away?


      • Posted by chasman on February 21, 2011 at 12:45 am

        I agree with John. The health benefits are not protected as contracts. Frankly, I never understood why both parties don’t just eliminate that benefit and then use any monies (current or future payouts) to increase the solvency of the pension funds. Post-retirement health benefits are clearly exempted from the “non-forfeitable” statute making benefits contractual in nature. Also, that statute no longer applies to any new pension members, whether for pensions or health benefits.


  8. John:
    I agree with you that a deal is a deal. However, Trenton and the politicians seem to be doing whatever they wish. I have been trying to find consistency which is difficult. I do know, however, that employees who have never participated in the State Health Benefits Plan found themselves as unwitting contributors. I feel that this country has become a true banana republic and whatever can be gotten away with becomes the law. Look at the bondholders of Chrysler.


  9. Posted by tough love on February 21, 2011 at 2:27 am


    I believe you missed something. The 15.3543 you used for the lump sum factor if retiring now (and likely the other one as well) is for a fixed payout single life annuity. I believe these pensions are annually COLA adjusted. For someone retiring at age 50 (and assuming an annual 3% COLA increase), the factor would be at least 1/3 higher.


    • I missed a few things, most of them deliberately, since I was primarily interested in comparing scenarios.

      Though my factors yield much higher benefits than official plan figures at 8.25% interest would they likely understate benefit values.
      Not only did I disregard COLAs (which Chrisitie might too) but I disregarded any salary increases for the Stayer (which might
      still be accurate) and the slightly higher employee contributions that would come from that. Plus I still believe the AMT10 mortality
      table understates values for a population that has lifetime health insurance beyond Medicare.

      If my life depended on it I would likely throw in more factors and come up with higher dollar numbers that would raise the value of those benefits – under both scenarios.


      • Posted by tough love on February 21, 2011 at 11:53 am

        The 80% payout (20% cutback or 2% per year) for collecting 10 full years earlier than the unreduced age of 60 is just one of the many ways taxpayers get abused. The most generous Private Sector Plans typically reduced benefits by 4%/yr, and Social Security is roughly 6%/yr.

        I know how peeved you are with Gov’t Plan actuaries shirking their responsibilities, but your knowledge/skills would be MUCH more valuable if instead focused on putting in front of the media, taxpayers, and yes politicians, the myriad if irresponsible, unfair (to taxpayers), expensive, and under-priced Plan provisions (such as this one) which must be changed.

        Of course once designed, a Plan SHOULD be properly funded, but the ROOT CAUSE of the problem is Plans that are simply too generous and THERFORE too costly and difficult to fund.

        THIS, helping to get these Plan BENEFITS reduced to a level no greater than what Private sector taxpayers get should be a major focus of your efforts.


        • Posted by muni-man on February 21, 2011 at 12:26 pm

          All these plans should be required to post taxpayer vs.
          taxeater pension funding ratios. This is the type of stuff that private sector taxpayers should demand. The public sector is pretty much giving itself a big transfer payment when it pays taxes. The NYC average ratio is close to $9-to-$1. NJ has significantly higher contribution rates so I’m guessing it’s around $5-to-$1 on average for full funding (maybe the absurd funding ratio is a major reason why the pols have skipped the payments). Hang tough CC and stiff the plans until they agree to your demands, particularly on employees paying substantially more for their health care coverage. The plans are dead, but I want them to pay a helluva lot more for their healthcare which is driving up my tax bill every year. Cap their healthcare benefit levels.


        • It gets worse. There is a 3% annual reduction from age 55 to 50 but only 1% annually from age 60 to 55. If I did a 55-year-old as an example the difference would have been starker.

          I can’t blame the public employees so much as the politicians and actuaries who are abetting this thievery by either keeping quiet (though with politicians it might be from ignorance) or actively supporting the creation of these unsustainable obligations.


          • Posted by muni-man on February 21, 2011 at 1:10 pm

            Total self-dealing over many years by the pols and unions (ably aided and abetted by union members who clamored ad nauseam for more, more, more and the actuaries who didn’t ‘fess up to the true story) has resulted in disaster.

            To say the public employees are faultless denies they weren’t greedy (they sure were/and still are)and the fact that they had a responsibility to perform their own ‘due diligence’ on the health of their plans. They live in this cocoon-like world where they think they have some sort of divine-right to be occupationally protected from everything bad in life. Doesn’t work that way.

            Definitely agree with you that there’s absolutely no way the Federales are riding to the rescue of these pension plans.

  10. John:
    I know that you believe that NJ will be the first to go bankrupt as far as its pension plan. However, I hear that a bailout may be on the way, not by the Congress, but possibly by the Fed. If Congress were to enact a bailout, perhaps the label of stimulus would still mask the true nature of the process. What do you predict will happen?


  11. Posted by javagold on February 21, 2011 at 1:25 pm

    too many levels of government, with too many employees , making too much salary, and then taking too high a pension and getting too much health benefits

    how can such a small number of people get so much over the large number of people…..i just cant get my head around that !


    • Posted by tough love on February 21, 2011 at 2:35 pm

      That one’s easy …. collusion between Public Sector Unions and our corrupt, self-serving, vote-selling, contribution-soliciting elected officials (“politicians”) …. combined with an uninformed, uninvolved citizenry.


  12. Posted by Larry Littlefield on February 21, 2011 at 4:27 pm

    My understanding is that the retroactive pension enhancements of the past 15 years have been retroactively revoked, including for existing retirees and employees. True?

    That would leave all the remaining guilt for the mess on the (past) taxpayer side.


    • There was a 9% bump-up in benefits in 2001 in NJ for everybody (retirees included) and the politicians, in their simplicity, see some sort on ‘repeal’ of that increase as a solution – fixing the problem – not realizing that all the other diversions of contributions, benefit enhancements, less-than-expected investment gains, and better-than-expected mortality make the required reduction more in the area of 50% to get back to where we were in 2001.


      • Posted by tough love on February 21, 2011 at 5:50 pm

        Now you’re addressing the REAL problem …. by saying we need a 50% reduction in future service pension accruals just to get back to 2001 levels.

        I’ve been say this and more for 2+ years.

        Few people seem to realize that to fully fund the “typical” Public Sector pension, he TAXPAYER paid-for share (expressed as a level % of cash pay throughout one’s career) is 5 to 10 TIMES greater than what the “typical” Private Sector employer contributes towards his employees’ pension.

        With cash pay in the Public and Private Sector now very close, these MUCH MUCH MUCH greater pension funding obligations result in much greater TOTAL COMPENSATION (Pay Plus Pensions plus benefits) for Public Sector workers …. for which there is simply NO justification.


  13. John:
    I wouldn’t Count Ben Bernanke out from bringing his printing presses to the Garden State to bail out the pension. They didn’t call him “helicopter Ben” for nothing meaning he spoke of printing money and dropping it from helicopters if need be in order to increase the money supply and prevent any chance of a deflationary environment from taking hold. Did you purchase gas recently?
    Perhaps he never studied history and the Weimar Republic in Germany. Remember those pictures of people bringing wheelbarrowls full of marks to the store just to buy a loaf of bread? I think it is a great plan to inflate away our debt don’t you?


  14. You have had advanced notice; the good ol US dollar has already lost 2/3s of its value against gold in the last 6 years alone. Good luck.


  15. I agree that you are correct about what had happened in 1981. However, we, in the US, were a creditor nation. China and India had not yet begun to emerge. The Indian Central Bank recently purchased over 200 tons of gold from the IMF in order to diversify against the US dollar. Russia and China are dealing in their own currencies without converting to the US dollar as the world reserve currency. China, Russia and the IMF also are calling for the end of the dollar as the reserve currency or at least are calling for a “basket of currencies” including the Japanese Yen.
    Finally, Paul Volker, as the Fed Chairman, had the guts to wring inflation out of the economy by ratcheting up interest rates during the period where gold peeked and then fell in 1981. Bernanke is a fraud and the entire economy would collapse today under such a debt load having to be financed with higher rates. Why do you think that the cost of living adjustments are non existent? The government lies. Seniors are really hurting.


    • Posted by tough love on February 22, 2011 at 1:02 am

      Not sure how soon, but it’s a “when” not “if” the Dollar is replaced as the world’s reserve currency.

      We’re gonna be in for a rough ride when that happens.


  16. John:
    What do you think that the odds are that Obama would sign the Transparency Act?


    • I hope it’s 100%. The methodology in there to value benefits is taken right from PPA which I’ve been doing now for years and is effective for 2011. So this could mean a lot of work for me if I can find a listserv of governments.

      That aside, it would go a long way towards cleaning up the mess since, in theory, it would expose a plan like Prichard, Alabama’s before it got to the point where the checks stopped.

      Since they put the word ‘transparency’ in the title it would take an awful lot of dancing around for Obama NOT to sign it. Worst I see happening is amending the factors that have to be used to allay the shock of the real numbers.


  17. John:
    Thanks. Maybe I have become too pessimistic in my views. I believe that everything is hopeless. Perhaps I am too jaded. Everything I have read sets the Garden State’s drop dead date at 2018. The people who called Prichard, like clockwork I may add, have also called the 2018 date for Jorsey.


  18. John:

    Great analysis, bit it doesn’t address the fact that thousands of employees who attained 25 years of service already have received letters stating (as per the current CWA contract) that they will get the health benefits in place at the time they attained 25 years. Since this deal is referenced in the current contract, unilateral violation of this by the employer would violate the current NJ Employee-employer relations act. How does your analysis affect your conclusion for employees who have already attained 25 years of service?


    • I’m sorry but it’s hard to take seriously that NJ would not do something just because there was a law against it. Witness the Lautenberg/Toricelli ballot switch and illegal bonding by McGreevey where the court said it was OK but don’t do it again.

      This analysis is only on pensions and it shows that anyone with 25 years of service (especially if they’re 55 or over) would lose a ton of pension money if they didn’t retire immediately so, I’m guessing, they will, which would bankrupt the plan that much sooner.

      Health benefits are a separate issue that I still can’t grasp. How is a governing body able to compensate their workforce by obligating a future governing body to pay them, in this case by having them pay all or part of their health care premiums? If that’s allowed then why don’t they do that with salaries – give everybody a 50% raise but condition it on having the money paid 5 years from now?


      • Posted by tough love on February 22, 2011 at 3:25 pm

        John, I understand your analysis completely, but even for those with 25 years of service, I don’t think running out the door at age 55 is affordable for most, and (especially in this economy) giving up a cushy job, likely at the top of the pay scale, and also very very hard to replace in the private sector, will keep most with NJ for quite some time.

        Look at it this way. Is the $100K current advantage (on the basis is of the PV calcs you showed), REALLY worth giving up perhaps 10 more years of a paycheck (likely with reasonable raises and pension increases), and (due to their seniority) with a VERY small likelihood of material reductions in pensions or retiree heathcare benefits) ?


        • I see that aspect and it’s a close call. However when that extra 3% for pensions plus 30% of health care benefits (remember for many it’s full boat including dental, vision, etc.) kick in that take-home pay will be approaching what the pension check would be. Plus there are other withholdings (Social Security, Medicare, union dues?) that don’t hit pensions.


          • Posted by tough love on February 22, 2011 at 3:48 pm

            I think this will “turn” on whether Christie can ram through the 30% (of health care premium contribution) for the retiree group … those ALREADY retired as well as NEW retirees.

            If it will only apply to new retirees (as opposed to neither groups or both groups), then yes, many will leave if they have the 25 years.

        • Posted by muni-man on February 22, 2011 at 4:51 pm

          2:43PM – from CC’s budget speech — he’s hangin’ tough on healthcare reform (still wants them to pay 30% by 2014, not Sweeney’s dragged out 7-year 12-30% incremental scheme). Promises an immediate $500M payment into the pension fund if they pass his pension plan reforms (as Carole King would say ‘It’s too late baby, it’s too late!).


  19. […] excellent exegesis for this media.  However, whereas I am able to link to explain the $250,000 giveback number, hard print is limited to the space provided and anyone interested in getting more of the story is […]


  20. Posted by mary on December 29, 2011 at 3:39 pm

    when will we the people stop allowing the officials such as all that work two years, or 4 years and recieve a full pension for life? we have to work twenty or twenty five years. now even longer. is this right? if we who work long hours for such long time go thru all this for monies we worked for, why are they getting off so easy.


  21. […] have sufficient retirement savingsFor All The Baby Boomers Who Are Looking For a Place to Retire!Should you retire now, NJ public employeeAnnuities – Spotlight February 2011Could Social Security Definitely be Around Their […]


  22. Posted by Anonymous on March 19, 2015 at 8:59 am

    Question on the mortality factors, sorry I must be missing g something, at 50 the individual’s life expectancy is 65 (15 multiple factor) and at 60 it’s 67 (7 multiple factor) seems a little low to me?


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