Real Number on New Jersey Pensions – 6/30/13 Update*

The June 30, 2013 valuation reports are almost all out

You might be seeing numbers tossed at you regarding deficits in the state pension of $48 billion and funded ratios of 64%**.  They’re way off.  Based on actuarial reports for the three largest plans I put their real deficit at $158 billion and their real current funded ratio at 33%. Let’s take this in stages as we replace official figures with real-world ones for these three largest plans.

OFFICIAL NUMBERS @ 6/30/13 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………30.5…………29.6………24.3……………..84.4
Liabilities……………….52.4…………47.0……….33.0…………..132.4
Deficit………………….-21.9…………-17.4……….-8.7……………-48.0
Funded Ratio………..58.2%………64.3%…….73.6%………….63.7%

The funds did not really have $84.4 billion in assets at June 30, 2013. 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 @ 6/30/13 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.9…………26.8………22.6……………..76.3
Liabilities……………….52.4…………47.0……….33.0…………..132.4
Deficit………………….-25.5…………-20.2……….-10.4…………..-56.1
Funded Ratio………..51.3%………57.0%…….68.5%………….57.6%

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 @ 6/30/13 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.9…………26.8………22.6……………..76.3
Bury Liabilities……….80.0…………70.0……….50.0…………..200.0
Deficit………………….-53.1…………-43.2……….-27.4………….-123.7
Funded Ratio………..33.6%………38.3%…….45.2%………….38.1%

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 19% (TPAF), 14% (PERS), and 18% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………26.9…………26.8………22.6……………..76.3
Bury/COLA Liab…….95.2…………79.8……….59.0…………..234.0
Deficit………………….-68.3…………-53.0……….-36.4………….-157.7
Funded Ratio………..28.3%………33.6%…….38.3%………….32.6%

For the year ended June 30, 2013 there was about $9 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 $12 billion in four 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, January, 2012, and March, 2013 with very minor changes in the text.

** Or not, so far there has been no coverage of these numbers based on a quick bing search.

26 responses to this post.

  1. Posted by Eric on March 10, 2014 at 8:02 pm

    John:
    The last time you had performed this calculation, you stated that the fund had 2 years of life remaining after the return of the current workers’ contributions plus their interest. Now you state that the plan has 4 years of life, which, of course is a doubling of the original projection.
    Is this not in some way good news?
    Eric

    Reply

    • I still think there’s only about a year or two left but this revision is a concession to the official asset numbers which I don’t really believe. I see maybe $15 billion of the assets reported to be in the plan as questionable because so much is in ‘alternative’ investments but I’m not ready to play that card in this update.

      Reply

      • Posted by Jomama on March 11, 2014 at 10:06 am

        John–nice work. I would however take issue with the “increasing life expectancy.” That expectancy is largely due to a decrease in infant mortality. In fact, some studies have found that life expectancy at age 65 has actually decreased for those with less than a high school education.

        Reply

        • Posted by Tough Love on March 11, 2014 at 10:50 pm

          Even if such a decrease is accurate, I suspect that only a small proportion of current and recently retired Public Sector workers have less than a high school education

          Reply

  2. Posted by Anonymous on March 10, 2014 at 8:16 pm

    John, you make such a huge deal about the COLA and then you say it only changes things by 5 percent. seems like a drop in the bucket, but yet you make it out to be the deal breaker.

    Reply

    • It isn’t 5%. My estimate is about 15% – 20% considering that benefits will need to be made up from 3 years of no COLAs after the appeal comes through. It was 90% of the 2011 reforms. The higher employee contributions and tweaks to benefits for the not-yet-hired are inconsequential compared to the COLA elimination.

      Reply

      • Posted by Anonymous on March 11, 2014 at 1:00 am

        Do you really see the government having to pay back COLA payments? Does sound like something the government would ever do even if they lose the lawsuit.

        Reply

        • Posted by Tough Love on March 11, 2014 at 1:53 am

          My opinion ….

          While the State may appeal an adverse decision, if it loses (or doesn’t appeal), yes it will make back COLA payments.

          Why ? Because Gov. Christie knows that NJ’s plans are dead eventually anyway, and as long as there is sufficient Plan assets to make the payments w/o giving him immediate budget problems … what the heck.

          Now it’s a whole nother matter when the assets hit zero …. and it’s EITHER reduced pensions or significantly increased taxes.

          As the Mayor of Omaha, Nebraska just said …

          “We are in a black hole and it’s going to take 45 years to get out of it,” said Omaha Mayor Jean Stothert, a Republican. “I’m not going to turn around and raise everybody’s taxes sky high and put it into the pension. The key is convincing unions this is something that must be done.”

          Reply

  3. Posted by Tough Love on March 10, 2014 at 9:32 pm

    Quoting …” unless, of course, New Jersey politicians step up and do the honorable thing”

    While I’m kind-of doubting you had this in mind, the “honorable thing” …. from the Taxpayers perspective, should be to reduce these grossly excessive pension promises to a level that likely would have been granted in the absence of the Public Sector Union/politician collusion, and certainly, with the Taxpayer’s share of the cost of such lowered pension promises more in line with what Private Sector typically get in retirement contributions from their employers.

    Reply

  4. Posted by Javagold on March 10, 2014 at 11:33 pm

    Hey if the COLAs speed up the demise of the public takers pension ponzi pyramid scam, then bring them back and triple them……give each public taker a case of a Coca-Cola and tell them , thanks for nothing !!

    Reply

    • Posted by truthnolie on March 11, 2014 at 2:03 am

      Maybe you can grab a few case from the McDonald’s you’ll be working at as a second or third job to pay for the increased taxes to pay for the pension benefits that public employee’s will be entitled to……

      Reply

      • Posted by Javagold on March 11, 2014 at 1:41 pm

        If that were to happen, I will just move out of this corrupt sinkhole…..you will have to find some other sucker !!!

        Reply

  5. Posted by Maceo on March 11, 2014 at 9:38 am

    John, Are you calculating the full COLA or the 2/3 COLA which applies to PFRS?

    Reply

    • When they passed the law to eliminate COLAs there were valuations done with the COLA included that they changed. I took the difference in the liabilities
      under those two valuations as a factor and then added on for the 3 years of missed COLAs to estimate the bump-up in liability values for when the COLAs come back.

      Reply

  6. Posted by ed on March 25, 2014 at 5:30 pm

    According to your projections, the fund will be depleted in 4 years unless politicians “step up and do the honorable thing”. And, according to your projections, the annual payout in 4 years will be about $12 billion.

    There is a lot of debate whether or not we are past the point of no return, where default is inevitable. When you mention figures like $12 billion in annual liabilities from an empty fund, it doesn’t sound like we’ll ever be able to catch up. To put $12 billion in perspective, that would require the equivalent of a 50% across the board property tax increase. It just doesn’t seem realistic.

    Is there any realistic scenario where the fund gets returned to solvency?

    Reply

    • Not without a government that has some sense of honor. They will keep lying and saying their mini-contributions will fund the plan to the very last dollar which, with COLAs likely returning and hedge funds blowing up, could be very soon.

      Reply

  7. […] most of the costs of benefits valued using dodgy assumptions and none of the costs of the massive ($157 billion?) unfunded liability that has resulted from this perversion of actuarial […]

    Reply

  8. […] Actuarial Accrued Liabilities of $46 billion.  But what about all those people out there saying those UAALs are much higher even before this sudden contribution holiday and the possible return of COLAs?  The Treasury […]

    Reply

  9. […] 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 […]

    Reply

  10. […] underfunding.  In the case of New Jersey the official liability value is $132 billion while the real liability number is about $250 […]

    Reply

  11. […] Most private sector funds (excluding multiemployer plans which are a mess but including ‘one-participant’ DB plans which are thriving) ARE funded at 100 percent and, if not, have to be funded at 100% within seven years under PPA funding rules and the actuarial assumptions that define 100% are legislated (though MAP-21 and HAFTA have watered those down).  Apply those private sector PPA factors to public plans and New Jersey’s 54% funded ratio drops to 30%. […]

    Reply

  12. […] Most private sector funds (excluding multiemployer plans which are a mess but including ‘one-participant’ DB plans which are thriving) ARE funded at 100 percent and, if not, have to be funded at 100% within seven years under PPA funding rules and the actuarial assumptions that define 100% are legislated (though MAP-21 and HAFTA have watered those down).  Apply those private sector PPA factors to public plans and New Jersey’s 54% funded ratio drops to 30%. […]

    Reply

  13. […] of pieces I did on April, 2009, February, 2010 , February, 2011, January, 2012, March, 2013, and March, 2014 with very minor changes in the […]

    Reply

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