Ranking New Jersey Governors on Pensions

The Wall Street Journal looked at the “sins of the past’ and played some blame game in regards to the New Jersey Public Pension System’s impending implosion.  They got several ex-governors to go on the record criticizing each others records and illustrated the underlying point of the piece by putting together a helpful chart comparing recommended contributions to what was actually deposited for each year going back to 1990:

nj pension payments

What strikes me now, and as it did when I started looking at public plans about five years ago, is how the recommended contributions are all far lower (generally 50% lower) than the actual payments going out to retirees which is amazing in a mature plan still accruing liabilities.  Every governor in the last 25 years can make a solid argument that they were misled by the actuaries and the system that develops these understated contribution amounts and would have acted differently had they been informed of the real scope of the crisis.  For example, Chris Christie’s 2011 reforms might have had a chance (assuming no court overrules and sticking to the plan) had he been dealing with a $40 billion problem instead of the $160 billion problem it actually was then.  However, each governor does share blame for adding to the crisis and here is my ranking of the worst offenders:

6. Jon Corzine (D) – the flip-flopper: he tried for two years and then gave up without a fight

5. James Florio (D) – the game player: Pension Revaluation Act of 1992 started the thievery by gimmicking assumptions

4. James McGreevey (D); Richard Codey (D) – the do-nothings

3. Donald DiFrancesco (R) – Santa: increasing every benefit (including for current retirees) by 9% to buy votes

2. Chris Christie (R) – the big talker: following the Corzine playbook but the problem he inherited was so much more severe (and obvious) while his approach was so much more arrogant (and probably illegal) that he deserves this ranking

1. Christine Todd Whitman (R) – the fiscal naif: getting talked into Pension Obligation Bonds was bad enough but deleting the state’s contribution as a budget line item doomed the plan irreparably

 

20 responses to this post.

  1. Posted by Anonymous on May 29, 2014 at 2:17 pm

    Whitman number one offender according to John. TL will wildly refute this fact but we must remember that is what frauds often do, refute the facts.

    Reply

    • Posted by Tough Love on May 29, 2014 at 3:06 pm

      Are the FACTS also wrong that while RARELY making less in cash pay, Public Sector pensions & benefits are ALWAYS multiples greater than their private sector counterparts?

      Reply

  2. Posted by jim buettner on May 29, 2014 at 2:18 pm

    If I didn’t know better the NJ Pension obligation looks like a classic Ponzi scheme.

    Reply

    • Posted by Tough Love on May 29, 2014 at 3:14 pm

      Of course they are. That’s why the arguments that they can’t close these DB Plans because they need the contributions of active workers (to be able to continue to pay current retirees) is so ridiculous. Think about it …… the annual contributions of BOTH the employee and the taxpayers are less than the present value of annual pension accruals to actives, so how can ANY of it be available to pay current retirees.

      It’s not. It’s just being stolen from current actives …. as you said, a classic PONZI Scheme.

      Reply

  3. Posted by Anonymous on May 29, 2014 at 3:43 pm

    I wonder Social Security collects enough money throughout ones lifetime to be able to pay the benefit. And what happens to the money when you dont live long enough to collect, seems your family should get it. That is a reverse ponzi where they take more money in then they give out

    Reply

    • Posted by Tough Love on May 29, 2014 at 5:14 pm

      SS is self-funded (on average) but with a generational shift. Those near the max wage base get less and those with the lower incomes get more than what they put in.

      With Public Sector pensions, it’s the Taxpayers who are universally suckered … being responsible for 80-90% of the total cost of pensions mostly 3x-4x greater than what they get.

      Reply

      • Posted by bpaterson on May 30, 2014 at 10:32 am

        in looking at social security, with rough figures, its 6% of your annual salary automatically deducted up to a present salary cap of something around $105,000. The SS is set up where one basically has to work for around 45 years, and then at retirement age gets maybe $25-30,000 pension, a set number which is NOT based on any highest earning years. it may not be specifically called a pension, but in all iterations of retirement funding it’s annual payout is included as such. But over the last 30 years the politicians have time and again pointed out that even this back up retirement source has been in peril even with its basis of longer working life and much smaller payouts. In reference to the state pensions, its a good portent of why we certain have problems of unsustainability of funding and payouts in that program.

        Reply

  4. Posted by Liz Farmer on May 29, 2014 at 4:15 pm

    As far as the comparison between the ARC and what’s paid out in a given year to retirees, it’s not necessarily surprising that the state’s annual payment is less than what it owes retirees in a year. There’s also the employee contributions to consider — those are separate from what the state’s ARC is. And then there’s the investment returns earned in a year. That money also goes toward paying out retirees.

    Reply

    • Liz,

      The employee contributions do add a little (20% of payouts: about $1.8 billion with $9 billion being paid out now) but even with those included there is still far more money going out than coming in which does translate into a death spiral.

      As for investment returns, those were anticipated. If the plan earns 7.9% then that theoretically is a wash since that is what the plan was assuming it would get. Only to the extent that returns are higher than 7/9% would it help the funding situation, which has been the case recently with the inflated values on alternative investments but when that bubble bursts it will speed the approach of pay-go..

      Reply

      • Posted by Liz Farmer on May 29, 2014 at 5:18 pm

        Ah, got it. And speaking of a 7.9 percent return assumption, most people would say that assumption is too high anyway. And assumptions that are that high have the effect of lowering what a state’s required contribution is… and here we are again with NJ not putting enough money in there in the first place! Thanks for the break down.

        Reply

  5. Posted by Liz Farmer on May 29, 2014 at 4:17 pm

    Impressive graphic though. It really shows that New Jersey’s real problem is not putting enough money in its pension fund in the first place. Blaming the 2008 crash is just a red herring.

    Reply

    • Posted by Tough Love on May 29, 2014 at 5:34 pm

      Baloney, The “required” total contributions are ONLY so high in the first place BECAUSE the of the grossly excessive generosity of the pension promises.

      Had ANY of our past Governors or legislatures really intended to fully pay fund what was promised (USING APPROPRIATE ASSUMPTIONS), the generosity of these pension promises would be half what they currently are.

      Reply

  6. Posted by Anonymous on May 29, 2014 at 5:57 pm

    I agree, an impressive table. I wonder what the table would look like had all the payments been made and lost interest accrued.

    Reply

    • Posted by dentss dennagan on May 29, 2014 at 7:09 pm

      It’s tough to figure what the state should have put into the pension ,without knowing what the fund really earned in a particular year .It’s the taxpayer that on the hook for bad investments or a bad stock market year ….like JB said were heading into a overly valued stock market and the withdrawals out of the fund keep getting larger ….Death spiral indeed .

      Reply

  7. Posted by Javagold on May 29, 2014 at 10:34 pm

    One more crash away, from this all being a mute point. Game over.

    Just watch the interest rates continue to drop. That’s the signal. It’s coming.

    Reply

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  10. […] year in a blog ranking New Jersey governors who have done the most damage to the state’s retirement system I […]

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