Real Number on New Jersey Pensions – 6/30/12 update*

The June 30, 2012 valuation reports are out.

You might be seeing numbers tossed at you regarding deficits in the state pension of $47.2 billion and a funded ratio of 64.5%.  They’re way off.  Based on actuarial reports for the three largest plans I put their real deficit now at $166 billion and their real current funded ratio at 29.7%. Let’s take this in stages as we replace official figures with real-world ones for these three largest plans.

OFFICIAL NUMBERS @ 6/30/12 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………31.1…………29.2………23.7……………..84.0
Liabilities……………….51.4…………45.4……….31.7…………..128.5
Deficit………………….-20.3…………-16.2……….-8.0……………-44.5
Funded Ratio………..60.5%………64.3%…….74.8%………….65.4%

The funds did not really have $84 billion in assets at June 30, 2012. The ‘actuarial value’ in this case means a phony value which in the private sector is used to ‘smooth’ valuations but in the public sector is used to distort. Here are the figures when we use market value of assets:

OFFICIAL NUMBERS WITH ASSETS AT MARKET @ 6/30/12 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.1…………25.2………21.1……………..72.4
Liabilities……………….51.4…………45.4……….31.7…………..128.5
Deficit………………….-25.3…………-20.2……..-10.6……………-56.1
Funded Ratio………..50.8%………55.5%…….66.6%………….56.4%

Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 7.9% interest assumption in a plan that demands liquidity) understate the true benefit costs. Here are the figures using realistic liability valuations:

BURY NUMBERS WITH MARKET VALUE @ 6/30/12 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.1…………25.2………21.1……………..72.4
Bury Liabilities………78.0…………68.0……….48.0…………..194.0
Deficit………………….-51.9…………-42.8……. -26.9…………..-121.6
Funded Ratio………..33.5%………37.1%…….44.0%………….37.3%

Next we turn to the COLA theft.  2010 liability numbers were adjusted for the plans to take into account the elimination of all future Cost-of-living adjustments that public employees were promised – in writing.  Were that reinstated the respective adjustments that artificially lowered liabilities will need to be reinstated to the tune of 17% (TPAF), 12% (PERS), and 16% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.1…………25.2………21.1……………..72.4
Bury/COLA Liab……..91.3…………76.2……….55.7…………..223.2
Deficit………………….-65.2…………-51.0……. -34.6………….-150.8
Funded Ratio………..28.6%………33.1%…….39.9%………….32.4%

Now remember these numbers were as of June 30, 2012. The latest report from the Division of Investments shows assets at $71.14 billion for the total fund and we can add another year of accruals to the liability side:

BURY/COLA WITH MARKET VALUE @ NOW (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………25.2…………24.4………20.4……………..70.0
Bury/COLA Liab……..97.0…………80.0……….59.0…………..236.0
Deficit………………….-71.8…………-55.6……. -38.6…………..-166.0
Funded Ratio………..26.0%………30.5%…….34.6%………….29.7%

For the year ended June 30, 2012 there was about $8.3 billion paid out in benefits from the system. With early retirement incentives, the return of cost-of-living adjustments, longer life expectancies, and baby-boomer retirements this payout number should hit $10 billion in two years by which time the fund will be depleted (after returning the interest-adjusted contributions made by employees) unless, of course, New Jersey politicians step up and do the honorable thing. There’s a debate as to whether you can put a number on that happening.

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* This is an update of pieces I did on April, 2009, February, 2010 , February, 2011, and January, 2012 with minor changes in the text.

15 responses to this post.

  1. Posted by Anonymous on March 5, 2013 at 3:32 pm

    What interest rate did you value your “Bury Liabilities”?

    Reply

    • Boiling it down to a PPA effective interest rate I would say 4% which is still higher than I believe this severely underfunded plan will return but there are other factors like mortality and participant-favorable-selection of features that, were I do a rigorous valuation of each aspect, would likely result in real unfunded exceeding $200 billion.

      I see the retiree liabilities alone at around $133 billion – $8.3 billion times a factor of 16 which is reasonable considering that the normal form of benefit is often a J&S and the population has lifetime health insurance and much lower retirement ages than the general population and with COLAs. There are 283,649 retirees in all systems as of 7/1/12 with an average annual payout of about $29,000. Project another 475,787 actives and VTs and $100 billion is a good estimate of their current liabilities.

      Reply

      • Posted by Tough Love on March 6, 2013 at 12:28 am

        John, is the normal annuity from J&S WITHOUT and actuarial equivalent reduction?

        If so, there’s ANOTHER 15% advantage Public Sector pensions have over Private.

        Reply

  2. Posted by muni-man on March 6, 2013 at 7:49 am

    With those funding estimates, it’s an ironclad certainty that the UNCOLA will stay in place until the plans become defunct.

    Reply

  3. […] using market value of assets and the Citibank interest rate, which I have essentially been using in my updates, results in a reduction in the funded ratio from 65% to 35% and an increase in the unfunded […]

    Reply

  4. Posted by Retired Police Officer Anthony Mercadante on May 8, 2013 at 11:47 pm

    Her’s a novel Idea how about the State of New Jersey puts back the 30 billion they Borrowed(STOLE) by either selling off land they own,borrowing(STEALING) from somebody else..Maybe that FAT BASTARD’S brother would want to contribute,I understand he was let off the hook for insider trading while his parters are in the Stir…From what I understand after being let off the hook he sold the Corporation for something like 40 million and now lives in New Jersey under his brother’s care!!

    Reply

  5. […] in the country with a combined funded ratio of 91.4%.  However, as I have been doing for the New Jersey plans, here’s how I see  those numbers translating to […]

    Reply

  6. Posted by wsautter123 on November 25, 2013 at 2:27 pm

    The justification for Whittman’s stealing pension money in the first place was over funding due to stock market gains in the 90s. Now that the market is at all time highs again, shouldn’t there again be a substantial increase in pension fund assets?
    If not, why not ??
    Piss poor management could be the only excuse !
    http://teachersdontsuck.blogspot.com/
    http://wsautter.com/

    Reply

  7. […] $1.7 billion to the system. But previous analysis suggests New Jersey will need to pay out $10 billion annually in a few years representing one-third of the current […]

    Reply

  8. […] and the second valuation taking into account the changes.  However when New Jersey with their own pathetically funded plans passed their ‘reforms’ the Senate president believed the problem was fixed without the […]

    Reply

  9. […] billion in pension liabilities!!!?? The real number is at least six times as much and rising and the .2 factor that Mercatus applies to this […]

    Reply

  10. […] are being bankrupted yet a governor making 50% of an already understated ARC for plans that are actually 30% funded struts it as an accomplishment and, as to the pension payment, a Wall Street Journal story […]

    Reply

  11. […] When the PFRS report gets released next week I will have my annual update on the real numbers which are likely to show the real funded as ratio to be around 30% with the real underfunded […]

    Reply

  12. […] is an update of pieces I did on April, 2009, February, 2010 , February, 2011, January, 2012, and March, 2013 with very minor changes in the […]

    Reply

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