Further changes to our pension system in New Jersey

As nauseating a state-of-the-state address as one is ever likely to encounter, full of cherry-picked statistics, audience plants, and bizarre initiatives* until 40 minutes in when Chris Christie asserted:

Because of our pension and debt service costs. For the Fiscal Year 2015 Budget, the increase in pension and debt service costs could amount to as much as nearly $1 billion.

That’s nearly $1 billion we can’t spend on education. That we can’t invest in infrastructure improvement. That we can’t use to put more cops on the street. That won’t be available to improve access to health care. And for those who would advocate for higher income taxes like the ones I have vetoed before, remember that the amount raised would not even cover the increase in our scheduled pension payment and would undoubtedly make us less competitive in the job market nationwide.

These are the consequences of failing to engage in an attitude of choice. If we continue in an era where we believe we can choose everything, we are really choosing nothing. We need to have the conversation now about further changes to our pension system and to adding further to the state’s debt load. But the time to avoid this conversation and these choices is nearly over.

If we do not choose to reduce our soaring pension and debt service costs, we will miss the opportunity to improve the lives of every New Jersey citizen, not just a select few.

That’s right, a mere 30 months after the problem was supposed to have been fixed:

the conversation needs to be had again? What will they be talking about?

I picked up on the word ‘choice’. 401(k)s were sold to a gullible private-sector workforce thirty years ago based on the idea of an ownership society with all these choices. As it turned out a majority of those duped now have a number choices but one of them is not being able to retire since they can’t afford to on their $50,000 401(k) account balances.

What Christie appears to be ready to roll out is the idea of freezing the state Defined Benefit plans (before June 30, 2014 so it can be considered in the July 1, 2013 valuations) and implementing account plans possibly tiered so the older public sector workers he will be directly negotiating with make out better.  An alternative is to have those older workers closer to retirement excluded from the freeze.  In any case, the goal is to reduce pension contributions without making it look like you are reducing benefits which is impossible to achieve in reality but easy enough in the political world where all that is necessary is to convince people who want to be convinced that an alternative reality exists.




* Can a politician just once hug someone who never took drugs rather than an ex-junkie campaign worker who hasn’t relapsed recently?

18 responses to this post.

  1. Posted by skip3house on January 14, 2014 at 9:24 pm

    You can put anything over on people who will not even try to follow 8th grade arithmetic


  2. Posted by Tough Love on January 14, 2014 at 10:12 pm

    Quoting… “These are the consequences of failing to engage in an attitude of choice. If we continue in an era where we believe we can choose everything, we are really choosing nothing. We need to have the conversation now about further changes to our pension system and to adding further to the state’s debt load. But the time to avoid this conversation and these choices is nearly over. If we do not choose to reduce our soaring pension and debt service costs, we will miss the opportunity to improve the lives of every New Jersey citizen, not just a select few.”

    Well, sounds like (this being his last term) perhaps he’s gearing up to actually address the REAL need … to stop digging the financial hole DEEPER every day by materially reducing the pension accrual rate for the FUTURE service of all CURRENT workers. John, you can’t possibly believe that would be a bad thing considering how excessive their promised pensions are today (as measured by ANY reasonable metric).

    And those who thought the pension problem was “solved” with the last round of changes are politically naive and know ZERO about pension costs/funding. While he didn’t accomplish much re pension reform (with the exception of the COLA elimination…if it holds), it’s hard to argue that the didn’t do far MORE than any other wimp-assed in-the-Union’s-pocket NJ politician would have done.


  3. Posted by Javagold on January 14, 2014 at 10:22 pm

    I want to see contributions tripled. The sooner the pension ponzi collapses. The better.


    • Posted by Tough Love on January 14, 2014 at 11:11 pm

      Tripled contributions?

      Yea…from the workers… not taxpayers.

      Don’t raise taxes. Cut the pensions to a level such that the “value” of their pensions at retirement (considering BOTH the richer formulas AND the MUCH richer “provisions”) is no greater than that of the TYPICAL Private Sector worker retiring with the SAME pay, with the SAME years of service, and at the SAME age at retirement.

      And to the Public Sector worker thinking…”but I was promised”…. don’t blame the Taxpayers (who have been financially mugged by your Unions and the politicians long enough).

      Blame the politicians (BOUGHT with your Union’s money to promise what’s WAY too generous and unaffordable) for betraying BOTH you AND the Taxpayers.


  4. So we were misled with the 401(k) more than 30 years ago and the DB pension is not sustainable so how would you save for retirement if you just graduated from college at 22 and recently accepted your first full-time job?


    • The 401(k) is fine. It’s ideal for public employees since you take away the default option that all-powerful governments with control over their judiciaries can fall back on when their overpromised and underfunded Defined Benefit plans blow up.

      The trick is to actually put in money. With DB plans there is supposed to be a contribution requirement but that’s easily manipulated for government plans. In the private sector it’s a lot harder to play around (these days) which is why ongoing DB plans are becoming rare (being either terminated or frozen) except for one-participant plans.


  5. Posted by Jomama on January 15, 2014 at 12:23 pm

    This really is turning into a Ponzi scheme. I don’t know what percentage of the total asset pool the state has contributed, but it has to be less than a third. I don’ understand why this amount is simply not bonded via pension obligation bonds. Last year my main mutual fund (POAGX) was up over 50%. Invest wisely, but put the money in to invest. The state would pay peanuts on a bond, and could invest that money.


    • Posted by Tough Love on January 15, 2014 at 2:08 pm

      POB’s (Pension Obligation Bonds), while “perhaps” providing some protection for Plan participants (since the POB sale proceeds become Plan assets), they are absolutely horrible for Taxpayers….little upside and huge downside, both in the risk taken and the fact that just selling POBs means that the gov’t is refusing to address the structural problem.

      When you need to even CONSIDER POBs, it likely means your pension promises are way too generous and need to be reduced for CURRENT workers.


      • Posted by Jomama on January 15, 2014 at 3:54 pm

        Here are the numbers for TPAF, I will assume other systems are similar: Since 1996 the state has not made it’s full actuarial contribution once. In total the state contributed 1.7 billion, employees 7.7 billion. So 18% of the TPAF pension plan has been funded by taxpayers.

        The advantage the the bonds would have is that the rate extremely low for the state, much less than the historical investment return on the stock/bond market. The idea that it’d be OK to default on pensions (which by the way can’t be done since the state can’t declare bankruptcy) while not OK to default on bonds, I don’t get. But this is a new era.

        I’m sure the state will attract new great teachers with the lavish pay and benefits they are offering. My daughter wanted to be a teacher, we’ve convinced her to go into a 2 year vocational program that pays, on average, 30% more than teaching!


        • Posted by Tough Love on January 16, 2014 at 12:27 am

          Jomama, I thrive on statistics………….

          I note yours above … that since 1996 the split of total TPAF Plan contributions has been 82% from the participants and 18% from the State (meaning the Taxpayers). While I don’t know if that’s accurate, I will accept it for this discussion.

          Boy, that certainly sounds like the Taxpayers are the bad guys. But lets dig a bit deeper.

          The position of all Public Sector Pension Plan participants (and their Unions) is that their promised pensions MUST be paid in full and on schedule, and no matter how poor investment returns might be, the Taxpayers are the balancing source for any and all Plan asset shortfalls.

          Ok so far?

          So at least conceptually, if not one dime of the Taxpayers’ share of total Plan costs was pre-funded, it wouldn’t really matter to you as long as you get paid … in full and on schedule from Taxpayer funds.

          Where I’m going with the above, is pointing out that it’s NOT really relevant HOW or WHEN Taxpayers pay their share of total Plan costs, just that they do so.

          Which leads us to the really RELEVANT question …. just WHAT IS the worker/Taxpayer split of the TOTAL cost of the promised Public Sector pensions?

          You with me?

          Well I’ve done it for a myriad of scenarios, and if you created a spreadsheet and accumulated each of your individual pension contributions (WITH typical balanced-portfolio investment earnings) to the date of your retirement, the accumulated sum would be sufficient to purchase 10-20% of the VERY generous pension you have been promised … and with safety workers (with the richest pensions and the youngest full retirement ages) on the lowest end of that range …. sometimes even BELOW the 10%.

          So YOUR pension contributions WITH investment earnings pay for 10-20% of your pension.

          Assuming that you will be paid in full and on time as you demand (and noting from the above discussion that under such circumstances the timing of Taxpayer contribution is not really relevant), the 80-90% balance comes from Taxpayer contributions and any investment earnings on THEIR contributions …… earnings that,in the absence of the need to fund your absurdly generous pensions, could have stayed in THEIR pockets, perhaps to help fund their much SMALLER retirements.

          Gee, doesn’t look like the Taxpayer is the real bad guy … does it?


          • Posted by Jomama on January 16, 2014 at 2:25 pm

            You have some good points for sure, and I actually believe that employees should pay more. However the whole concept of an annuity is based on historical returns which are 8% in the stock market. Had the state made the pension payments instead of initiating the homestead rebate, the pensions would be solid. Perhaps what is needed is increased employee payments while interest rates are low.

            How would you feel if your employer did not make their matching 401k payments? You would file a lawsuit and win. What is our recourse? Sell our homes, don’t send our kids to college, and change those big expenses.

            But really, if you think you’re going to get math and science teachers given the paltry salaries compared to business and no benefits–you’re crazy. You can’t get them now. Nobody wants their kids to be a teacher now.

            If I contribute $5,000 a year (I have over $100k in contributions over 20 years) for a total of 25 years at 8%, I would have over $365,0000. At current interest rates, I could buy a $2800 annuity. If interest rates double or triple, as they have been over my career, those numbers would be much higher.

          • Posted by Tough Love on January 16, 2014 at 4:47 pm

            Jomama, I don’t think the answer is simply that the workers pay more …. because the contribution they would need to pay (given the extraordinarily generous pensions & benefits) would likely be 25+% of cash pay (and MUCH more from safety workers).

            The goal should rightfully be that in Public/Private Sector “Total Compensation” (cash pay plus pensions plus benefits) in comparable jobs (or if not directly comparable, in jobs where education, experience, skill sets, and risks are reasonable comparable) should be near equal. While right now (in the vast majority of jobs),”cash pay” is indeed near equal, that’s hardly the case for pensions & benefits, with those granted Public Sector workers (everywhere) ALWAYS multiples greater in value at retirement than their Private Sector counterparts. Certainly you don’t think richer formulas, MUCH younger full (unreduced) retirement ages, VERY liberal definitions of “pensionable compensation”, and Post-retirement COLAs (currently suspended in NJ) come without great cost?

            While increased employee contributions would help, what’s really needed and justifiable is a very material reduction in the pension BENEFITS promised …..and (to have near-term financial impact) it needs to apply to the FUTURE service of CURRENT, not just new workers. And before you respond by saying that such reductions would be unfair to those currently employed, let me point out that such FUTURE Service reductions are both legal and ROUTINELY MADE in Private Sector Plans….. while sometimes grandfathering-in very long service employees within a few years of retirement Are Public Sector workers entitled to a better deal and greater protections from change than those granted the Taxpayers that pay their way?

            You ask …”How would you feel if your employer did not make their matching 401k payments?

            I would feel betrayed, as you do now, but is that really the complete picture when the typical Private Sector employer gets a 2-5% of cash pay company “match” into their 401K Plan, while to fully fund (over the working career of the employee, and not passing on a debt to FUTURE taxpayers) the TYPICAL non-safety worker Public Sector pension requires a level annual 20-40% of cash pay … and often 40-60% of cash pay for safety workers. While defaulting on “promises” is always a betrayal, the401K contributions are easily affordable, while the absurdly generous promises made to Public Sector workers are wildly unaffordable. Without very material pension reductions, In MANY cities, there will eventually be no option OTHER THAN catastrophic default.

            The real betrayal won’t be from the Taxpayers (even IF they default on these promises.) The ROOT CAUSE is the collusion between your Unions and our self-serving elected officials, trading campaign contributions and election support for favorable votes on these grotesque pension and benefit promises.

            And I agree that there is a big problem hiring qualified math and science teachers ….I see it where I live. Perhaps we should pay Science and Math more ….but NOT be required to raise the pay of teachers in subject areas where there is no such hiring/retention difficulty. Isn’t this problem exacerbated by the Teacher Union’s refusal to allow for such pay differentials…. even where clearly justifiable and appropriate ?

  6. Posted by Anonymous on January 15, 2014 at 4:34 pm

    The state has not made paymens b/c they cannot afford to make payments due to the exessiveness w/0 cutting out most of their other debt ridden back door deals and hand out programs. 401Ks work just fine if folks are diligent about saving as opposed to spending every penny they make on fancy cars and big TVs. The state will have no problem finding teachers at reduced salaries and
    benefits b/c there aren’t many other jobs out there. Let the publics pay for their retirements and work longer just like the rest of us. Funny how all of a sudden Chrsitie is getting tough on reforming the pensions. Maybe if they all had the ba**s 2 years ago, in freezing salaries, more employee contributions, cracking down on the double dippers, multi-pensioners and cheats the plan might be in better shape and publics and taxpayers alike would have a win win.


    • Posted by Tough Love on January 15, 2014 at 4:50 pm

      Quoting …”Maybe if they all had the ba**s 2 years ago, in freezing salaries, more employee contributions, cracking down on the double dippers, multi-pensioners and cheats the plan might be in better shape and publics and taxpayers alike would have a win win.”

      It would be nice to do these things, because they are just and necessary. But as to having a material impact on NJ’s underfunded pensions …. not even a small dent.

      Even FREEZING all of NJ’s DB Plans for CURRENT workers wouldn’t address the HUGE unfunded liability for PAST service accruals, but at least it would stop the DAILY digging of the financial hole we are in even deeper. And considering how NJ’s TAXPAYER-FUNDED Pension Plans (Like ALL other PUBLIC Sector Plans) are ALWAYS multiples greater in value at retirement than those of their Private Sector counterparts, doing so for CURRENT (not just new) workers is not only NECESSARY, but eminently justified.


  7. Posted by bpaterson on January 15, 2014 at 6:18 pm

    it appears our illustrious elected officials always had a tough choice—fund the pension plans or fund the abbot districts. The judiciary made the decision for them.


    • Posted by Tough Love on January 15, 2014 at 6:37 pm

      Good family values and active participation in their children’s education yields results, not throwing money at those where family participation is lacking.

      The Abbot decisions have been an unmitigated disaster …. costing a great fortune, and producing no tangible results.

      BUT ………. even if we didn’t have to waste all that money on the Abbot fiasco, there is no justification for using it to fully fund Public Sector pensions that are WAY too generous and unnecessary in the first place. There are MUCH better uses for available revenue (higher education, libraries, parks, the elderly, infrastructure repairs, etc.)…… not the least of which would be to lower taxes and not collect it in the first place.


      • Posted by skip3house on January 15, 2014 at 6:59 pm

        Necessary/justified taxes should be progressive, based on ability to pay, AND only fully cover expenses/obligations of the government for the tax period being served.
        ‘Next year, and last year….’ are the responsibility of those taxpayers represented by their governments THEN !


  8. Posted by MJ on January 15, 2014 at 8:40 pm

    Mmmmm….so what to do what to do?? Let’s get all of the double dippers, disability cheats, welfare queens, professionally unemployed, illegals, etc. out of the system and let’s see where we are. Christie is a liar and so are the rest of them. Pensions will not be paid–perhaps this is his backlash for this bridge gate disaster ….more to come I’m sure. Seems like he is trying to be more conservative. A useful idiot who has worn out his welcome.


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