Page 8

The July 1, 2013 actuarial reports for the New Jersey pension plans are coming out and if you are of a mind to explain to your teacher friends why they will soon be seeing Detroit-type ‘adjustments’ to their pensions just point them to page 8 of the Milliman report for the Teachers Plan – TPAF – (Buck does the valuations for the other 6 plans in the system) titled ‘Risk Measures.’  Search the Buck reports and you won’t even find the word ‘risk’ mentioned but Milliman beginning with their July 1, 2009 report thought it a good idea to mention that…..


The Risk Measures exhibit on page 8 for the last five years compares the value of the liabilities* for retiree benefits to the market value of assets less the Annuity Savings Fund (accumulated member contributions).  That percentage as of July 1, 2013: 50.2%.

Now compare that to July 1, 2000 (when Milliman didn’t feel the need to insert a Risk Measures exhibit).  $1,159,146,402 in retiree payouts valued at $12,040,604,827 and easily covered by the $35,839,120,536 in assets even when reduced by the $5,034,537,874 in the Annuity Savings Fund.  That percentage came to 255.84% and even considering the dodgy assumptions for valuing liabilities (then and now) there would have been plenty of money to annuitize retirees.

After thirteen years of exploding liabilities, stagnant assets, and contribution-shirking subsidized by prior taxpayers, this plan is dead as anyone who makes it to page 8 will need to acknowledge.




* Understated liability values at that according to how Moody’s and GASB see it.

23 responses to this post.

  1. Posted by Tough Love on March 8, 2014 at 10:43 pm

    John, Is there any “legal” prohibition from Plan managers using the asserts backing the Annuity Savings fund to make retiree benefit payments should there be no assets except those (backing the Annuity Savings fund) remaining?


    • It would be surprising if anything was in writing since it would have been inconceivable that anyone would have seen this as an issue even 13 years ago.

      It’s surprising how big a percentage of assets that ASF fund is now – projecting out across all funds probably $30 billion and 40% of assets and that percentage will be rising as employees put in more and the fund being depleted by $9 – $10 billion in payouts annually. No idea what would happen when the ASF is 100% of assets – 2019?


  2. Posted by Anonymous on March 8, 2014 at 11:07 pm

    Am I at the poverty level? My wife and I have a total income of less than 20k per year.
    Does that mean I wont lose 50 percent of my pension as TL want me to.


    • Posted by Tough Love on March 8, 2014 at 11:43 pm

      If you read my recent comment in a prior post from Mr. Bury’s, a quick “proposal” I came up with suggested a ZERO reduction for retirees with a pension up to $50K annually.

      Perhaps the cutoff should (or will simply have to) be lower.


      • Posted by Tough Love on March 8, 2014 at 11:50 pm

        And that was $50K PER RETIREE, not PER “couple”.


        • Posted by Anonymous on March 9, 2014 at 7:56 am

          Unfortunately, I dont think there are many employees who are getting 50k or more. You would need to be making at least 100k when you retire and have had worked for about 30 years or more. Your plan may not save much money at all. In your mind you believe that public employees make just as much money as the private sector. Despite rumors you have heard it is not true. The government used to give me a 25 cent per hour raise at most every few years, but many times there was no raise at all.. Actually the government would propose no raise for three years and take backs as well when negotiating a contract with the union. The picture is not as pretty as you paint it, at least not for me.


          • Posted by Tough Love on March 9, 2014 at 12:14 pm

            Actually, a properly thought out pension reform proposal should include much more than just the $$$ payout. For example a $100K pension for a 35-year employee retiring at age 65 is not as egregious as a $100K pension to a 25-year employee retiring at age 55.


  3. Posted by Anonymous on March 9, 2014 at 7:11 pm

    There is absolutely no mechanism for a state to reduce pensions. In fact the state was taken to court in the past for not making payments. The judge said that the state doesn’t have to make the payment, they have the liability. Moreover, at this point, a reduction would violate the “takings” clause of the constitution as a state may not take property–and make no mistake, the pension funds are majority owned by the workers who continue to fund them. This talk of reduction is foolish–as the state will find out when they lose the case for COLA.

    A sensible solution involves workers paying more and taxpayers making the required payment. After this years budget, there should be an extra 2 billion in the budget next year. An economic recovery and some inflation will go a long way.


    • Posted by Tough Love on March 9, 2014 at 8:55 pm

      You sound quite nervous/concerned for someone so convinced that pension reductions cannot happen.

      As to your suggestion, it might actually work and be fair (keeping in mind that VERY generous pensions are VERY costly) IF the workers contributed say and ADDITIONAL 20% of pay annually forever.


      • Posted by truthnolie on March 10, 2014 at 1:59 am

        And Social Security can be saved if you and your ilk contribute an additional 20% annually FOREVER to save it…….don’t see you volunteering to do that or give it up to help the SS system since you’re so benevolent…..I posted this before yet still no commitment from you to do so….why not…..oh yeah…’re a jealous, greedy HYPOCRITE who wants everyone else to give in BUT NOT YOU!


        • Posted by Tough Love on March 10, 2014 at 2:08 am

          Ah truthnlie is back ….

          Interesting how in suggesting that, you for to mention (or adjust for the fact that) that PUBLIC Sector Pensions have a value (considering BOTH the richer formula AND the richer provision) MANY times greater than Social Security (or the typical Private Sector pension).

          Bottom line … Taxpayer should contribute NO MORE towards Public Sector pensions than Private Sector workers get (from their employers) towards their own.

          That 20% extra I proposed is ONLY because Public Sector workers insist on such rich pensions. That’s fine …. as long as you pay for it YOURSELF.


          • Posted by truthnolie on March 10, 2014 at 12:51 pm

            Haven’t gone anywhere…..unlike you, I just don’t choose to blather on incessantly spewing the same old blather & nonsensical ravings that are inherent in your posts – those of a miserly, pathetic person full of loathing and envy over what others get and ARE ENTITLED TO via agreements made and CONTRACTUALLY BARGAINED (by YOUR elected reps……if they made bad deals so be it… should have waged your war against them for years).

            Again…SS is in trouble…every little bit counts… you should commit to contributing more or not taking any (Or the way you think about PE’s… both!) in order to sustain it. I’m also sure you’d have no problem if your mortgage co., car finance, etc. creditors came to you and told you they needed more money from you due to bad business decisions on their end, others not paying, etc….Yeah….thought not


          • Posted by Jomama on March 10, 2014 at 1:27 pm

            I suspect you are aware that the reason there is such a shortage is because the state didn’t pay it’s share for 20 years. So really, we’re talking about how to cover the state’s share. The “richer” provision does not exist, there is no research at all to support it. In fact, just the opposite, there is significant research that says that college graduates working in the public sector are under paid. There is simply no way for the state to discharge these pensions. Even if a state could enter bankruptcy, I think you’d find that to be a poor choice.

            Perhaps the state could be outsourced, like the company that blew up the gas line in Ewing, or the charter schools that go out of business. I see Commish Cerf gave his new employer a 2M contract (google Bob Braun’s ledger)–but oh yeah, there’s no money for pensions.

            I do think that the double dipping needs to stop. And it is always done at the top of salary expenses.


          • Posted by Tough Love on March 10, 2014 at 9:12 pm

            In a prior post of Mr Bury titled ….”Double-Dippers Are Not The Problem”, in my comment time-stamped “March 7, 2014 at 3:56 pm”, I stated the following:

            “I believe that John and I are not in disagreement at all, but just have a different focus….. although kudos to John for having MUCH more patience than I with the nonsense/garbage that Public Sector workers put forth to try to justify their absurdly generous pensions.”

            The responses to me from Truthnolie and from Jomama are perfect examples of that “nonsense/garbage” I was referring to. I’ll be specific:

            (1) Truthnolie, your rantings (of “Entitlements” and “Contractually bargained”) are those of an immature little man beating his chest and demanding that the unfair and unnecessarily rich (i.e., your grossly excessive pensions and benefits granted only due to the collusion between your Unions and our campaign-contribution-bought-off elected officials) be honored with a “to-hell-with-the Taxpayers” attitude. Why should the Taxpayers honor such fraudulently-negotiated “contracts” ?

            And your bringing Social Security into a discussion of Public Sector pensions just shows your desperation …. as even the most rudimentary calculation of SS costs/benefits shows that (perhaps with the exception of the lowest paid workers) the workers FULLY fund (with THEIR OWN contributions) the SS formula benefits they are granted.

            (2) And Jomama, It’s oh so simplistic to say …”the reason there is such a shortage is because the state didn’t pay it’s share for 20 years” ….. when the assigned Taxpayer “share” is in the order of 80%-90% of the TRUE Total Cost of pension promises multiples greater in value than what comparable Private Sector workers are typically granted from their employers. Why should Taxpayers fund such a high share of a promise so unnecessary (to attract and retain a qualified workforce) and so fundamentally unfair (to THEM)? And the rest ….. more chest beating, just like Truthnolie….. I want what I want, it’s not unfair, and you can’t take it away, yada yada yada. Well, we’ll see, won’t we ?

            (3) To argue that Public Sector pensions are not MATERIALLY more generous than both Private Sector pensions and Social Security is the height of arrogance and indifference to the truth ….. and demonstration of that is quite simple.

            The clearest/easiest way to compare the richness of various retirement packages is to compute and compare the lump sum needed on the retirement date to fully fund all promised future payouts using (for discounting purposes) the SAME set of assumptions (investment earnings, mortality, CPI increases if any, etc.). While it makes sense to use reasonable and appropriate assumptions (including the consideration of investment “risk” issues and who pays for adverse experience), so as to arrive at Lump Sum figures representative of the pension’s true “value”, as long as the SAME set of assumptions is used for all retirement packages being compared, the comparison of the various pension’s resultant Lump Sums does indeed compare Plan “richness” (or “generosity”).

            Such a calculation and comparison is appropriate because not only is the richness of the Plan “formula” incorporated into such calculation, but the richness and value of plan “provisions” is included as well. For example, while Public Sector workers like to wave-off very young (unreduced) full retirement ages and COLA-increases as being of only marginal incremental value, or simply a “necessary” plan provision to avoid purchasing-power wear-away during retirement, such provisions are financially NOT of minimal value, but VERY VERY costly provisions. And interestingly, because they become part of future pension payouts, the very material implications of final Public Sector pay “spiking”, under-priced buying of additional years of service not actually worked, and early retirements with less than actuarially equivalent payout reductions are included as well.

            If we compare the TYPICAL Public Sector pension to the TYPICAL Private Sector pension, for Public and Private Sector workers making the SAME cash pay, retiring at the SAME age, and having the SAME years of service, INVARIABLY the lump sum value at retirement (as outlined above) of the Public Sector worker’s pension will always be AT LEASE 2x greater than that of the Private Sector worker, MOST OFTEN 3x-4x greater, and for Safety workers (with the richest pensions), OFTEN 4x-6x greater.

            (4) To complete the comparison, we need to look not only at the richness of the pension (formula AND provisions) but how the total cost of that pension is shared between the workers and the employer (i.e., the Taxpayers in the case of PUBLIC Sector pensions).

            The appropriate and fair (to BOTH Taxpayers and Public Sector workers) “goal” under which this should be considered is one where Public and Private Sector workers in comparable jobs (or if not directly comparable, where the job’s risks, and requirements with respect to experience, education, knowledge, and skill sets are reasonably comparable) earn near equal “Total Compensation” (cash pay plus the annual incremental value of pensions and OPEB, such as retiree healthcare benefits).

            While there are competing studies, most conclude that Public/Private Sector “cash pay” is near equal. This being the case, and with EQUAL “Total Compensation” the appropriate and fair “goal”, there is ZERO justification for ANY greater TAXPAYER-FUNDED Public Sector pensions (or retiree heathcare subsidies) let alone ones that are MULTIPLES greater in value at retirement.

            It’s quite easy to determine what PRIVATE Sector workers typically get in retirement benefits today …. that being their employer’s FICA (SS) (6.2% of pay) contribution on their behalf, plus a 401K DC Plan “match” typically in the range of 3%-5% of pay.

            It’s also not terribly difficult to estimate the TOTAL COST of a specific Defined Benefit pension, expressed as a level % of annual pay …. from which we can determine the Taxpayer’s share by subtracting the worker’s own contributions (including investment earnings thereon). While a specific Plan’s ACTUAL Total Cost is ultimately a function of ACTUAL experience (knowable only in hindsight), ESTIMATES can easily be made, the results of which will vary based on the assumptions used in the calculation (the most important being investment earnings, the rate used for discounting Plan liabilities, mortality rates, annual salary increase rates, and termination rates, etc.). Using reasonably conservative assumptions consistent with what Moodys currently uses to evaluate Gov’t entity credit worthiness, the TOTAL Cost of Public Sector DB pensions (depending on the richness of Plan formulas and provisions … e.g., young FULL retirement ages, COLAs, etc.) typically ranges from 25%-40% of pay for miscellaneous workers and teachers, to 40%-60% of pay for safety workers. While I use my own spreadsheets to do such calculations, the above results can easily be duplicated by using the “pension_analysis_model” EXCEL spreadsheet linked (in blue type) in the following article:


            The middle of the TOTAL Plan Costs ranges (from above) are a level annual 32.5% of pay for miscellaneous workers and teachers, and 50% for safety workers. With Typical Public Sector worker’s contribution in the 5%-10% of pay range, and using the middle of that range (7.5%), that leaves as the Taxpayers’ share of Total Public Sector Pan costs; 32.5%-7.5%= 25% for miscellaneous workers and teachers and 50%-7.5%=42.5% for safety workers.

            If the Public Sector worker DOES participate in Social Security, these Taxpayer- shares of 25% and 42.5% of pay are directly comparable to the 3%-5% of pay 401K “match” that Private Sector workers typically get towards THEIR retirements .. meaning that under the current structure, Taxpayers are told that the share of Total Public Sector Plan costs that THEY are responsible for corresponds to a contribution level roughly 5 to 10 times greater than what they get from their employers … and all while public Sector workers earn no less in cash pay. And even for those Public Sector workers NOT participating in SS, the 25% and 42.5% are then comparable to the Private Sector worker’s employer contribution of 6.2% (towards SS) + 3%-5% of pay = roughly 10% of pay meaning that they are STILL 2.5 to 4 times greater than what they get from their employers How can this possibly be justified ?

            Now for complete disclosure (yup, I DON’T try to intentionally distort facts or conclusions as Public Sector unions/workers routinely do), the above pension cost percentages apply mostly to longer-service career workers and those percentages would be a bit lower for shorter service workers due to the back-loaded structure of Traditional-style DB (typically granted Public Sector workers), and for NJ plan comparison purposes, I assumed that the COLAs are reinstated. COLAs were included for 2 reasons, they are almost universal in Public Sector pension Plans, and it currently appears highly likely that they will be (via Court decision) reinstated in NJ’s pension Plans.


            And no, I haven’t forgotten that while virtually all Public Sector workers get free or heavily subsidized retiree healthcare, employer-provided retiree healthcare is rapidly disappearing from the Private Sector. When considering the younger (pre-Medicare) ages at which Public Sector workers TYPICALLY retiree, and that more often than not, it covers not only the workers, but a spouse (and perhaps children), this EASILY adds a few hundreds of thousands of dollars to PUBLIC Sector worker retirement costs (that Private Sector workers don’t get), almost all of which is paid for NOT by the workers, but by Taxpayers.

            Again, how can this possibly be justified ?


  4. Posted by bpaterson on March 10, 2014 at 11:57 am

    From the plans, and in recent muni budget hearings it appears the state is adjusting pension contributions downward, definitely for the muni and probably for the county PERS/PFRS, and looks like same as with the TPAF it appears. see page 9 of 83 of the report: (if I read it right?)


  5. Posted by truthnolie on March 11, 2014 at 1:55 am

    @ Tough Love

    No one would ever accuse you of being long winded (sarcasm)……ever hear of the concept “keep it simple, stupid”…..but of course that would go against the concept you apparently love of long winded posts filled with clutter & repetition that no one can get through without a sedative.


    • Posted by Tough Love on March 11, 2014 at 2:07 am

      While there is likely some repetition, everything I said is factual and accurate ……..John, please correct me if I have materially misstated anything …. and if (as I suspect) you are a Public Sector workers expecting a NJ pension, I suggest you save mightily OUTSIDE that pension, as it is highly likely that the amounts actually paid to you will be significantly lower that what our self-interested, Taxpayer-betraying elected officials “promised” you.

      It’s time you realized that banging your head against a wall and demanding the impossible (full payment of an impossible promise) is counterproductive.


  6. […] A: The system only has 50% of the money necessary to make good on promises to just the current retirees and needs about $160 billion more right now to be actuarially sound under honest actuarial […]








  10. […] and now benefits have to be reduced since there is not enough money in the system to even pay 50% of what would be due to the retirees ALONE. Hence, this ballot […]


  11. […] any reasonable measure the New Jersey retirement system is already bankrupt so it is not the $1.2 billion in restored […]


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