What Should Scare New Jersey Public Retirees

In preparing for a presentation that I will give to a group of retired New Jersey police and firefighters on Wednesday I came across a spreadsheet created from official actuarial reports that tell a story far scarier than anything coming out of Detroit, especially these four numbers:

$2,928,477,611 in annual benefit payouts with $85,234,656,793 in market value of assets as of July 1, 2000.

$8,378,180,605 in annual benefit payouts with $74,150,625,343 in market value of assets as of July 1, 2012.

It can be argued that as of 7/1/00 the New Jersey plans were fully funded* with only 3.4% of trust assets going out in benefits and over the succeeding twelve years the plan has been accruing liabilities which it has been paying for by siphoning off assets from those retirees to the point where 11.3% (and rising) of trust assets are now going out in benefit payments annually.  Theoretically retirees in 2000 could have rolled over their present values and gotten their promised benefits.  Today, as I will try to explain later this week, they are over $50 billion short.

What could be scarier?

The future…..especially with this guy in charge:





* Of course the plans were still underfunded back in 2000 with assets at the height of the internet bubble and 8.25% as the interest assumption but it is interesting to note that the Actuarial Value of Assets was about 88% of the Market Value then which is how smoothing is supposed to work.  We may be at the height of another asset bubble (fueled by Alternative Investments) yet as of 7/1/12 the Actuarial Value is 116% of Market Value.

27 responses to this post.

  1. Posted by Javagold on February 23, 2014 at 9:40 pm

    Watch out for a RUN ON PENSIONS !!!!…..he who panics 1st, panics best !!!


  2. A rate of return of 7.9%? That is absurdly high. Even in California the systems are moving down to 7,25% and even that is too high. An assumed rate of return that is too high understates the true cost of the pension, reduces contributions paid into the system, and will likely result in a huge unfunded liability.


  3. Posted by Anonymous on February 23, 2014 at 10:09 pm

    We saved the taxpayers over 20 billion dollars! lol


    • In the video it was $120 billion and over the next 30 years which should have prompted among thinking people an obvious question:

      “If these dinky reforms save $120 billion then how many hundreds of billions of dollars will we be on the hook for over the next 30 years?”


      • Posted by Anonymous on February 24, 2014 at 12:05 am

        John, in light of this what then is the ultimate solution to the pension shortfall and how worried should the pensioners be at this time? In past posts you have said that you think COLAs will be restored thus taking more from the already dismal funds


        • In the near future the next cause of concern will likely be how much retiree health benefits will be cut (or how much will be taken out of pension checks to pay for those benefits) since Christie is likely thinking of a budget number he will spend on benefits and if he can’t figure out a way to cut back on the pension side he will do it on the health benefit side..

          It’s a zombie pension now. It’s only a matter of when people want to wake up to that fact. Increased contributions (tin substantial amounts) are not going to happen. POBs will not happen, especially with Detroit defaulting on theirs. With the return of COLAs the annual payout will be in the $10+ billion range and without the ability to cut benefits already accrued this plan has about 5 years left until pay-go after taking into account the crash of the Alternative Investments when that comes.


          • Posted by Tough Love on February 24, 2014 at 1:00 am

            John, Would much time (to demise) be gained if ALL Current DB PLANS were frozen for FUTURE service (with any saved DB contributions in excess of new DC funding requirements going into the frozen DB Plans) and replaced for future service with DC Plans paying a total taxpayer contribution of 11% (i.e. 11% if not in SS and 4.8% if in SS) which is on the higher end of what Private Sector workers typically get from their employers?

            My guess is “not much” simply because we (the taxpayers) are only now paying 3/7 of (an artificially low) ARC, so likely, there would be no net savings ……. although, at least on paper, the IOU would stop growing (not a bad thing in and of itself).


            • It’s a non-issue. They’ve shot their wad with the COLA elimination and aren’t thinking DC (which I proposed when I met with two Christie aides about 4 years ago).


  4. Posted by Anonymous on February 24, 2014 at 3:26 am

    “if he can’t figure out a way to cut back on the pension side he will do it on the health benefit side”

    He might try to go there for those in the state health benefits plans but what about those towns that are in private plans (HIF’s) – Wouldn’t each such town have to prove they could not pay for or provide the coverage to their retirees since it was a contractual agreement between the town and the retiree??


    • Posted by Tough Love on February 24, 2014 at 4:04 am

      Don’t you just love it …. the fighting for the spoils


      • Posted by Anonymous on February 24, 2014 at 8:15 am

        I’m not even part of the plans but have followed the issue closely and was raising the question as to how it could be done equally for all employees.

        You need to get a grip, stop assuming and seeing yourself as the smartest one in the room…..something tells me you’re far from it


        • Posted by Tough Love on February 24, 2014 at 1:17 pm

          My apologies, It’s really a very unfortunate situation for those who will/may be impacted promises so much greater than available funding to pay for them.

          Your comment just reminded me of all that “brother” stuff at Union protests and always believing it would quickly disappear once the difficult times arrived. My comment was insensitive to the situation Public Sector workers finds themselves in at the fault of our elected officials and Unions leaders.


  5. Posted by Anonymous on February 24, 2014 at 8:35 am

    John, do you think it possible that the state will shift more and more of the financial obligations onto the individual cities, towns and municipalities? If so, would bankruptcy be an option as to what is happening in Detroit and CA towns or would a RI scenario be more likely?


    • Not with pension payments for state employees (unless they force towns to again pay for their teacher pensions) but the state can further cut back on grants. Whether that will lead to
      bankruptcies I don’t know except for Union County where they don’t have to answer to voters (literrally) and they get 100% of their tax bills paid through their member municipalities.


  6. Posted by haz on February 24, 2014 at 9:46 am

    Pb are you going to provide a video post so all members can view your presentation?
    I just retired in Jan and after hearing the near pension shortfall. I think a lot active members that can retire now will stay.


    • I’ll have the equipment there and ask if it can be taped. Supposedly this will be meeting of different P&F groups from around the state who are being limited to one or two representatives so they may want to get it out there to more of their members.


  7. If the COLAS will be restored and the next payment will be made, what’s the problem other than the state has no real way to pay for it? John, are you saying the pension issue will go away and instead the publics will just pay more into healthcare, thus reducing the obligations?

    Doesn’t really do much to help solve the problem..It will be interesting to see what is in Christie’s State of the State. I can’t really see raising taxes as our real estate taxes are the highest around.


  8. Posted by Anonymous on February 24, 2014 at 3:40 pm

    What makes me laugh it that people dont realize that if the state goes bankrupt it wont just effect the public employee. somehow the taxpayer thinks they will get away unblemished.. Everyone will suffer greatly, not just those with a pension.


    • Posted by Anonymous on February 24, 2014 at 3:52 pm

      Moving out reduces all one’s liability’s permanently ,something that won’t help the state pensioners .


    • Posted by bpaterson on February 24, 2014 at 8:03 pm

      anon 3:40, FWIW somehow the majority of the taxpayers would not be affected since most of them do not use all those superfluous programs and services, just the normal roads and infrastructure items.


      • Posted by Anonymous on February 25, 2014 at 7:40 am

        BP In this stinking economy of the jersey comeback it’s already a tough real estate market. Highest taxes around most can’t afford to buy homes in NJ. Younger people are renting or moving out. This affects all of us in one way or another


    • Posted by Anonymous on February 25, 2014 at 7:37 am

      I don’t think that the state will go bankrupt but you are correct that when the inevitable crash comes it will affect everyone. Hard enough selling homes in NJ now with the highest real estate taxes around. Best to make significant reforms ASAP so that it is a win win all around to help make the state a more viable place to live.


  9. Posted by Anonymous on February 24, 2014 at 4:40 pm



  10. Posted by Anonymous on February 24, 2014 at 5:50 pm

    Not to mention losing ones job


  11. Posted by Jomama on February 25, 2014 at 12:00 pm

    Estimates are that the state will have an additional 2.1 billion in next year’s budget. Investment returns from the last 12 months should be stellar. Employees are making increased pension payments. The state dug this whole by giving homestead rebates, it’ll be interesting to see Christie pitch the tax cut, while continuing the cycle of not making a full pension payment.

    Perhaps there will be a change in health benefit coverage, in which case the costs will be passed from the state to the local municipality because there will be no retirements before age 65 (Medicare).


    • Posted by Tough Love on February 25, 2014 at 11:21 pm

      Quoting …”The state dug this whole by giving homestead rebates”

      The State has made MANY bad decisions, but the ROOT CAUSE of THIS hole are the grossly excessive pension & benefit promises.


      • Posted by Anonymous on May 25, 2014 at 6:52 pm

        What grossly overpaid benefits would those be? I haven’t seen a single study that finds any cause other than NOT paying as the most significant cause of NJ pension issues. It is a GOVERNANCE problem.

        Is there room for improvement? Certainly. In any other place, would recommend changes in final average salary, linking COLAs to a more local measurement to tie in and hope for better multiplier, cutback early retirement incentives, and better align eligibility with total HR goals. But I’m not convinced this can be successful in New Jersey where discipline, commitment, and ethics seem to be foreign terms.

        At the beginning of Christie’s term, a friend said she never would vote for a fat politician as they lack self-discipline. I thought she was kidding. Now I think she might have a point.


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