Disecting the Corpse of the NJ Retirement System

According to the July 1, 2000 valuation report the New Jersey Retirement System had $85 billion in assets to cover $67 billion in liabilities.  Annual payouts were $2.9 billion to 180,570 retirees.  As of July 1, 2012 the assets went nowhere but official liabilities doubled and annual payouts to 283,649 retirees were $8.4 billion.

There were games played over the years to get us here (which I invite you to comment on after reviewing this spreadsheet comparison) but the most fascinating to me are those that would not be obvious without an autopsy.

It struck me strange that in 2000 with an 8.75% interest assumption the average annuity factor for retirees would have been 10.34 while in 2012 it DROPPED to 9.30 when supposedly the interest assumption was 7.9%.   Has the life expectancy for retirees gone down?  Can the average retiree age be higher when there were 100,000 new retirees over that period?  Is there some other factor?

Yes there is.  What do you think the reason is?

19 responses to this post.

  1. Posted by Javagold on March 7, 2013 at 5:15 pm

    why 8 million people , allow 800,000 leeches to suck them dry, is beyond common sense

    stop throwing good money into this corrupt black hole !!!


    • Posted by My Ignorant Opinion on March 8, 2013 at 4:06 am

      why 8 million people , allow 800,000 leeches to suck them dry

      The 800,000 leeches have families, often large ones. They represent a few million individuals. Add other government stakeholders like those employed on government contracts and programs like Section 8 and you easily have an electoral majority.


  2. Posted by Tough Love on March 7, 2013 at 5:32 pm

    John, Possibilities …
    (1) Did the Mortality table(s) change ?
    (2) If mortality basis includes a mortality improvement scale, did they introduce or lower the assumption for future mortality improvement ?
    (3) Did they make a switch, such as to or from sex-distinct to Unisex mortality ?
    (4) Did they take way a more costly “standard” annuity option ?
    (5) Did fewer retirees elect under-priced options ?
    (6) Are the 8.75% and 7.9% the same in all calendar years ?


    • Went through all that but it’s something more obvious.


      • Posted by Tough Love on March 7, 2013 at 5:37 pm

        OK … more obvious………

        Are you sure the averages from the 2 years are comparing the exact same Plan groups ? E.g., safety workers retire at much younger ages.


      • Posted by Tough Love on March 7, 2013 at 5:42 pm

        My last comment leads to another …

        Was there a Plan-specific change in the prior year that accelerated retirements in THAT year (hence decreasing retirement in the following year) ? Seems unlikely the shift could have that big an impact, but if such a Plan-specific change impacted a Plan with annuity factor average at the extreme ends, it could shift the overall avgeage,


      • Posted by My Ignorant Opinion on March 8, 2013 at 4:08 am

        Good God, there is going to be a plague. I’m stocking up on hand wipes.

        Or maybe they just backed the number out of the calculation and do not justify it.


  3. Posted by quinnfield on March 7, 2013 at 6:35 pm

    Did the COLA assumption change?


    • That’s it. They got rid of COLAs starting in with the 2011 valuation so the annuity factor, and liability values, drop by about 20%.


      • Posted by Tough Love on March 7, 2013 at 8:33 pm

        John, I was doing a few calcs and something looked strange. The 9.34 @ 7.9% w/o COLA would correspond to a retirement age of just about 65 assuming a Straight life annuity (and using the Private Sector Unisex Table common in Private Sector Plans a few years ago).

        Do NJ’s Public Sector Plans use a Mortality table with much shorter life expectancies ?


        • Mortality table is RP2000 set back 1 year but this size population is big enough to use their own experience though that might result in unacceptably high values.
          If the next 12 years approximate what happened in the last 12 by 2025 there would be 430,000 retirees getting $24 billion annually. Absent hyperinflation
          I can’t see that being possible.


          • Posted by Tough Love on March 7, 2013 at 10:45 pm

            Some quick calcs show that if the 7.9% were reduced to 7% 6%, 5%, and 4%, the annuity factors (and hence the PV of the Plan liabilities) would increase by 8.3%, 19.2%, 32.1%, and 47.7% respectively.

            So with Moody’s 5.5% bogy, they’ll go up just about 25%.

  4. Posted by JS on March 7, 2013 at 10:58 pm

    Is it possible to get a drop dead date based on expected payouts? I would like to know when to expect more intense elections as the publics realize the pot is starting to boil.


    • We’re pretty close. You have to remember that of the $70 billion in the pot, about $30 billion are the active employees’ own contributions. The only valuation that keeps track is the Teachers’ plan and they list $10 billion. Since they’re about one-third of the population $30 billion is a good guess. Then there are the retires and vested terminees who have not gotten all their contributions back. With the spate of recent retirees that could be another $10 billion. Then you have those Pension Obligation Bonds that have to be paid off which I estimate to be about $7 billion – the trust got this money in 1997 and repayments began in 2009 out of the general fund. A summary of that situation is here:

      Then there’s that ‘alternative’ investment money that is likely overstated and you’ve got about two years payments left before you strike bone.

      If you’re talking absolute zero – employee contributions gone, POB debt still due (and maybe more) – that’s probably around 10 years if the COLAs stay eliminated, 8 years if they come back.


      • Posted by Tough Love on March 8, 2013 at 1:24 am

        I doubt if material changes will take place until some time AFTER we hit that bone and it starts to sink in with the younger actives that they are being screwed by continued FULL payments to retirees. As Plan assets dwindle, it will start to sink in and their ability to stand up to the retirees, the Union, and the older actives will grow.

        A fairer process is an across the board cut to everyone (there aren’t sufficient assets)……… at least until (and IF) such time that a CREDIBLE plan for full funding within 20 years can be put in place. Clearly such a Plan requires significant cuts in promised pension benefit levels … not just increased employee contributions and/or tax increases.

        It’s DEFINITELY going to get REAL ugly.


  5. Posted by muni-man on March 8, 2013 at 11:19 am

    Pretty telling that between 2000-2012 while total retirees increased by 57%, pension payouts increased by 190% over those same 12 years. That’s an annual compounded rate of 9.28%/yr. Yeah, that’s sustainable all right. That’s really indicative of a problem of the kind that publics don’t like to and never will acknowledge. And then they supposedly wonder why the plans are on a glide path into the ground because of lack of funding?? They’re delusional. No level of funding could keep up with this, and thankfully, NJ hasn’t tried to keep up with it.

    For whom the pension bell tolls – it tolls for thee, public employee.


  6. Posted by art on March 8, 2013 at 1:34 pm

    very nice job..i rated “very poor” when I meant “very good”. I believe there is a macro economic factor here (and in Conn where I live) that is never mentioned. When i started working we had large employment in regulated telecom, insurance, banks, and defense industries. Private sector in 1980 had pension like public, left work at 5 and could get involved in the community. Now rarely is a person in a productive private sector able to run for local office..I (and others) are lucky to get home at 7. The town councils are now all “townies”..local lawyers/insurance dependent on the goodwill of town/education employees, town or education employees or retirees, etc. The average person is only now with the recession of 07+ becoming aware of how bad they have been taken advantage of. That is why things have run amuck for the past 20 years.. I mad some appearance on this subject in the late 1980’s! and to this day am shunned by the “townies”..many of whom I grew up with, played ball, etc.


    • Posted by Anonymous on March 8, 2013 at 4:52 pm

      Excellent point Art! If any of the publics speak out they will be black balled from future job options. Actually have a friend in a public union who is coerced into registering as democrat as he is in a union. Claims that all he does is vote the opposite !


  7. Posted by eatingdogfood on March 8, 2013 at 10:30 pm

    If The Democrats Didn’t Give ” Sweetheart Deals ” To Your Public Service Union.
    Goon Employees To Get Reelected; You Would Have Plenty Of Money and The.
    Taxpayer would have Some Spare Change in His Pockets! Democratic Hustler
    Politicians + Corrupt Union Goons = BANKRUPTCY BABY! Time To Bring.
    RICO Conspiracy Charges Against The Hustler Corrupt Democrats and the.
    Criminal Unions!


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