New Jersey Politicians Amusing Dean Baker


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In a wide-ranging and often insightful interview on Fox Business economist Dean Baker argues the theme that there is no pension crises though when the topic of New Jersey is broached:

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Having witnessed, and often chronicled, the public pension travesty in New Jersey (as well as budget chicanery in Union County) I do not see politicians here as being either ‘cute’ or ‘funny’. I see them as a combination of incompetent and corrupt with unhealthy seasonings of cowardice and dishonesty for which anyone obligated for taxes here will be paying dearly for decades.

9 responses to this post.

  1. Posted by Ralph on April 10, 2014 at 5:21 pm

    Interesting, ultimately it is precisely because bond holders must get paid, that pensions will get paid. Isn’t it ironic that the little guys will get their pensions because big business and the rich can’t take a loss.

    Interesting piece on NJ retirees website about assumptions in the pension plan: 100% married, an average wage increase assumption of about 5% a year, and more. These seem like big assumptions that are in error. There is no way increases will average 5% or that 100% or workers are married. Why can’t the actuaries get it right?

    Reply

    • Posted by Tough Love on April 10, 2014 at 5:46 pm

      The 5% may seem high, but remember that (unlike the private sector jobs I am aware of) many Public Sector jobs include automatic “step” (i.e., longevity) increases IN ADDITION TO annual raises. Also, workers typically get several promotions w/raises over their careers,

      It’s not unlikely to averages out to 5% even in today’s lower-raise environment.

      A 100% marriage assumption does on it’s face seems unreasonable, but it should have little impact if actuarial equivalent benefit adjustments are made with respect to marital status issues.

      Reply

    • Posted by MJ on April 10, 2014 at 8:51 pm

      Bond holders will always be paid before pensioners. May have to take a hair cut but not as much as the pensioners will. BTW why does’t anyone on these commentaries talk about the excessiveness of these obligations. The excessiveness is the ultimate reason why they can not make the payments.

      Reply

      • Posted by Tough Love on April 10, 2014 at 9:55 pm

        MJ, Where have you been ?

        THAT’s been my main “beef” for the past 5+ years …. “funding” requirements FOLLOW generosity and ” funding” isn’t the ROOT CAUSE of the problem, grossly excessive “generosity” is.

        Reply

        • Posted by MJ on April 11, 2014 at 9:04 pm

          I realize that TL. I am questioning why no one else is questioning the excessiveness

          Reply

          • Posted by Tough Love on April 11, 2014 at 9:30 pm

            “Fixing” the problem (via material FUTURE Service pension reductions) means that the Taxpayers must move the focus of the discussions from inadequate “funding” (which is exactly where the Public Sector workers/Unions like to keep it) to the ROOT CAUSE of the problem ….. the excessive generosity.of the Public Sector pension promises.

            And key is that when the Public Sector Union/workers blame the problem on annual funding less than that recommended by the actuaries (even when based on optimistic assumption) is pointing out that the funding levels are so (unreasonably) high DIRECTLY BECAUSE the promises are excessive.

            Rarely mentioned is that setting the benefit level excessively high MEANS that full funding requirements will follow in step and also be excessive.

  2. I feel a little like Penn & Teller exposing magic tricks but those assumptions are there to understate contributions, despite how it may look.

    1) Assuming everyone is married could allow liabilities to be valued using some REDUCED spousal annuity with the reduction based on plan assumptions. The normal form of benefit is a life annuity as per page 23 of the PERS handbook:
    http://www.state.nj.us/treasury/pensions/pdf/handbook/persbook.pdf

    “You may want to leave a pension benefit to a benefi- ciary in addition to any life insurance for which you are eligible. When you complete your Application for Retirement Allowance you will have to choose either the Maximum Option or one of eight other options that provide a pension benefit to your beneficiary. Selecting an option other than the Maximum Option will reduce your monthly retirement allowance.”

    2) Assuming a 5% salary scale allows for lower current contributions that get made up in future years if the Normal Cost is Level Premium allocated on relative salaries (not explicitly stated in report but it’s a pretty good bet that it is).

    Reply

    • Posted by Ralph on April 11, 2014 at 1:01 pm

      Thanks John. You continue to demonstrate honesty, a must need ingredient that appears to be in scare supply.

      Reply

  3. Posted by Richard on April 15, 2014 at 1:06 am

    When co-beneficiary (aka spousal) benefits are calculated they are based on an assumption of the existing COLA provisions. When these provisions are breached, that is a breach of contract even if you assume the basic COLA breach is not. Same for purchase of service contracts.

    Reply

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