New Jersey Making Its Case

”Ladies and gentlemen,” he said, ”I don’t believe Mrs. Helmsley is charged in the indictment with being a tough bitch,” adding that in the United States people are not jailed for being unpopular.

Recalling tactics used by Leona’s Helmsley’s defense team, lawyers for New Jersey in their legal brief looking to justify an emergency situation that would allow pension contributions to be skipped decided to use what was available to them to win their case – namely  their client’s elephantine fiscal incompetence.

  • Never before in New Jersey’s history has the State experienced such a staggering revenue shortfall so late in the fiscal year. (page 1 – opening line)
  • The Constitution assigns roles in the budget process to the other branches of government, as courts lack …. the fiscal expertise of the Executive Branch (page 1)
  • the State took the challenged action only after an unprecedented and unanticipated fiscal crisis arose (page 3)
  • the pension systems are not on the verge of an imminent collapse; they are projected to continue providing benefits to retirees for at least the next thirty years. (page 5)

The same people in the executive and legislative branches who did not see a staggering and unprecedented fiscal crisis coming are predicting that a fund with $40 billion in it, after employee contributions are removed, that needs to pay out $9 billion (and rising) annually will be around for 30 years when they themselves are allowed the right to renege on any contribution obligations that may be imposed on them.

If the argument is that this administration is too incompetent to follow rules and laws that would restrict how they govern and needs the freedom to ignore laws, both enacted and natural, in order to govern then maybe that’s not governing but dictating.

22 responses to this post.

  1. Posted by Anonymous on June 20, 2014 at 7:36 am

    Let’s see here Christie says the pension system is broke and needs reform and the sky is falling and the sun might not even rise in the morning BUT the lawyers from the AG’s office say everything is fine for 30 years. Let’s see where should we set up the traffic cones.Only in Jersey.

    There would be no such staggering fiscal crisis if the Governor had listened to David Rosen (OLS Budget Chief) a man that actually does his job well, let’s see what did CC call him the Dr Kevorkian of numbers. When will Christie ever take blame for anything, his day is coming soon.

    Reply

  2. Posted by Anonymous on June 20, 2014 at 9:07 am

    Did Helmsley win or lose?

    Reply

  3. Posted by Anonymous on June 20, 2014 at 9:10 am

    Brett Schundler could have warned all of us how trustworthy Christie is. I believe he would sell out his own mother, wife and children. That is very scary, huh?

    Reply

    • Posted by Anonymous on June 20, 2014 at 9:17 am

      Brett (who I am no fan of) got thrown under the bus by CC big time. His cleaners still can’t get the tire marks out.

      Reply

  4. Posted by Pat on June 20, 2014 at 12:18 pm

    Under the section “The State’s Decision to not Make the Entirety of Its 3/7 Payment Does not Threaten the Integrity of the Pension System” it states ‘Based on actuarial assumptions and assuming that the State returns to a regular payment schedule, “the pension systems are projected to continue providing benefits to retirees for at least the next thirty years.””

    I guess I should feel reassured. The state will never pay the full amount, so how long will they last if they go paygo?

    Reply

    • Posted by Tough Love on June 20, 2014 at 12:28 pm

      I’ll answer that question with a question ….

      When it goes paygo (in about 5 years), and assuming that retirees cannot be paid from the ongoing contributions from current “actives”, do you believe we can find the ADDITIONAL $9 Billion (annual retiree payout) from either more service cuts, and/or further tax increases ?

      Reply

      • Posted by dentss dunnigan on June 20, 2014 at 3:23 pm

        5 years …..so your assuming this bubble of a stock market will keep inflating for another 5 years ……at best it should last until Hillary gets elected .

        Reply

        • Posted by Tough Love on June 20, 2014 at 5:05 pm

          No. Per Mr. Bury, the Plans have $40 Billion of assets exclusive of active worker contributions. With investment earnings on the declining balance (as $9 Billion of retiree payouts occur annually) the assets should last about 5 years, and perhaps a 1 or 2 longer if we consistently get excellent investment returns on that declining balance.

          Reply

          • Posted by Tough Love on June 20, 2014 at 6:14 pm

            Follow-up (ran the #s) …… for the $40 Billion (assuming a level $9 Billion in annual retiree payouts) the $40 Buiion will hit ZERO in 5, 6, and 7 years with investment earnings rates of just about 5%, 11%, and 15% respectively.

            Of course, a flood of new retirees (without offsetting retiree/beneficiary deaths) would likely increase the payout, shortening the time to paygo, as would a Court decision to reinstate COLAs.

      • Posted by dentss dunnigan on June 20, 2014 at 6:56 pm

        let me rephrase that .of that 40 billion at least 12 billion must be in very liquid investments usually short term bonds …which anything under 1 year is paying under 1%……I don’t like the chances of that money earning 5% from here but could lose 25+ % if invested in stocks …tick tock ….http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/06/20140620_1987.jpg

        Reply

        • Posted by Tough Love on June 20, 2014 at 7:05 pm

          Well, they SHOULD BE in short term investments (asset-liability “matching” is the financial terminology). Doesn’t mean they STILL won’t be reaching for big returns (via hedge funds, etc.) to “possibly” put off the day of reckoning.

          Reply

  5. Posted by Anonymous on June 20, 2014 at 7:35 pm

    TL hates all benefits she even posts on articles in California….what a life or lack of one.

    Tough Love June 20, 2014 at 8:58 am #
    Quoting …”We often hear about “generous retirement packages” of the six-figure variety, attributable to union greed and worker ‘entitlement.’ The fault and inequity among public servants, however, lies mostly at the feet of our elected representatives.”
    Yes, the primary “fault” rests with out self-serving, contribution-soliciting, vote-selling, taxpayer-betraying elected officials.
    But…… the BENEFICIARIES of that largess are the Public Sector workers via their grossly excessive pension & benefit promises, so THAT’S where the abused Private Sector Taxpayers must look to right this wrong ….. by very materially reducing the pension and benefit promises that have been made to all CURRENT workers, and to the extent financially necessary, to those already retired.

    See more at: http://www.santabarbaraview.com/gunning-for-retirement5636356/comment-page-1/#sthash.maOGKkCP.dpuf

    Reply

    • Posted by Tough Love on June 20, 2014 at 10:53 pm

      I was responding to the first 2 sentences in quotes, with my response starting with the word “Yes”. Do you think that by re-posting it in some way embarrasses or reflect poorly on me?

      What I said is completely true and appropriate and if you weren’t on the receiving end of the Public Sector gravy train, and instead being unjustly force to pay for it, you would agree.

      Advocating to undo the excesses granted by elected officials bought-off with your Union’s money does not constitute “hate” for Public Sector workers, but simply … justice.

      YOUR obvious “hate” should be directed at your Union executives AND your elected officials, … BOTH of whom betrayed you (as well as the Taxpayers) by promising that which they knew was impossible, and which led to the financial predicament we now find ourselves.

      Reply

  6. Posted by Anonymous on June 21, 2014 at 9:17 am

    I do not understand where this $40 Billion figure came from unless it is just being used as an example. According to the division of investments ” End of Fiscal Year 2013, the pension fund was valued at $74.45 billion.

    On a more positive note (I am serious about this one) I had to go to ugh Walmart today I needed some cutting line for my trimmer (I am allowed to trim in the front of my house but god forbid I trim the sea grass behind the house on the beach) and I needed a new swivel for a stool and a kitchen faucet. I was very surprised when I got home all three items were made in the USA. I hope this trend continues and the US again starts producing more goods and becoming less reliant on China. It may be only an economic decision for companies to produce goods here but it is a step in the right direction.

    Reply

    • Posted by Tough Love on June 21, 2014 at 9:38 am

      Likely the $74.4-$40 Billion = 24.4 Billion represents the actual employee contribution amounts of (a) those still active, (b) terminated employees with deferred pensions, and (c) the excess of contribution over payouts-to-date for recent retirees.

      John’s position (which seems logical) is that they can’t (or at least shouldn’t) use these funds (other than (c) to the actual contributors) to pay out to current retirees. As unfair as that would be, it wouldn’t surprise me if they did so.

      Reply

      • Posted by Anonymous on June 21, 2014 at 10:27 am

        Thank You for your answer:

        I know that you go back and forth with posters(myself included) on this board (you have called us greedy etc but that is your right I guess). But I have an interest in these pension funds being solvent and able to pay benefits. It is my belief that if the State and Locals had made its required contributions (which were reasonable) over the years the State and Local funds would be in much better shape.

        The Towns and Counties have been paying an increased share over the past years, the state required them to but did not require themselves to contribute. Due to these increased contributions the local funds are in much better shape.

        Pensions were not an issue when the funds were in better shape. In my case the City never paid Social Security for me so their contribution was in lieu of that and a reasonable employer expense.

        Yes the recession caused a blip in earnings for the funds but had they been properly funded they could have weathered the storm.

        The taxpayers benefited from all the years of no contributions, maybe not directly but that was less money that needed to be raised by taxation. Should the taxpayers of the State be liable to repay all the monies withheld by the politicians in short order I don’t think so, but over a long period monies must be budgeted along with employee contributions (which have already been increased directly and by COLAs being eliminated) and investment returns to be able to pay benefits.

        I support a hybrid system similar to what Rhode Island is proposing as long as the State keeps its hands off the money, makes its matching contribution and sticks to a formula that is a sliding scale of DB vs DC upon retirement. Also employees must have full control of their investment options not the State.

        Pension payments must be reigned in. No double dipping, no padding and no multiple pensions. Disability pensions, if you work you lose dollar for dollar. I know this will not happen in my lifetime.

        Call me jealous I am thankful for my pension and I can survive in retirement thanks to financial decisions I made while working I did not contribute to deferred comp but strove to be debt free upon retirement and fortunately I reached that goal.But does anyone actually deserve a pension of 120K a year which would the pension for my position if one retired today.

        Reply

        • Posted by truthnolie on June 21, 2014 at 11:50 am

          Probably the BEST post I have ever read anywhere on the issue.

          “In my case the City never paid Social Security for me so their contribution was in lieu of that and a reasonable employer expense.”

          Exactly….and a point that is never brought up anytime the matter is discussed. People who protest pensions can’t get it into their heads that most NJ pe’s do not get SS and will have to rely on their pensions……in order to see it from our side, they need to put it in terms of SS being cut or taken away from them and let’s see how that would change their opinions.

          Also, by the way, our Chub Gov. has been masterful in lumping all the pension systems together but it is mostly the state parts that are in serious trouble. The local systems are in adequate shape and do not need a massive overhaul – the changes forced by Chapter 78 in 2011 will work to supplement those local plans and over several years will get them back to a high level of funding……that is if the state doesn’t continually ILLEGALLY not make the required contributions!

          Reply

          • Posted by Anonymous on June 21, 2014 at 2:18 pm

            No one ever is told or they disregard the fact that there are local and state plans. Christie has always lumped them together, this actually makes the state plans look better funded.

            PFRS Local has reached the funding level that the trustees are supposed to meet to vote on restoring the cola, the only problem is the Christie appointees will not cooperate and schedule a meeting. The meeting would be a joke anyway as CC’s appointees outnumber the unions and elected trustees. Hey maybe we can arrange for some lane closures around their homes. Heck one even lives in PA we already know how to close down a bridge.

        • Posted by Tough Love on June 21, 2014 at 8:05 pm

          Well, that’s a welcome change, a Public Sector worker willing to rationally discuss these difficult issues….. certainly worthy of an equally honest response…

          First, I agree with some (but not all) of what you have stated, and based on your $120K pension (were you to retire now), I’m guessing simply by backing into the salary that would result in this pension, that you are either a police chief, school superintendent (or other very level administrator), a city/town manager, or perhaps a City/State doctor or attorney (classified as an employee). And since you stated ….. “Disability pensions, if you work you lose dollar for dollar.”, I certainly can eliminate Police chief, as their mentality certainly hasn’t reached that logical stage yet …. and I surmise that the MANY questionable (i.e. unjustifiable) police disability pensions piss you off as they do me.

          I’m going to leave the points where I disagree with you for last so as not to start off on the wrong foot.

          (1) you said … “The Towns and Counties have been paying an increased share over the past years, the state required them to but did not require themselves to contribute. Due to these increased contributions the local funds are in much better shape.”

          That’s true, with the “official” LOCAL funding ratios averaging about 75% vs somewhat below 60% for the State systems. While 75% is actually quite lousy there are many who perpetuate the myth that funding ratios of 80% are “healthy”. That’s not true AT ALL.

          see: http://actuary.org/content/actuaries-debunk-myth-80-pension-funded-ratio-alone-constitutes-%E2%80%98actuarially-sound%E2%80%99-recommen ……

          and see: http://actuary.org/content/pension-practice-council-publishes-issue-brief-80-percent-funded-ratio-myth

          In addition, the “official” funding ratios are based on calculations that use high interest rate assumptions (it’s 7.9% for NJ’s Plans) for 2 purposes: (a) as the overall assumed return on assets, and (b) to discount Plan liabilities (i.e., projected future retiree payouts) to the current (valuation) date. While few financial professionals feel this is appropriate even for the purpose in (a) above, you who be hard-pressed to find ANY who feel it even remotely appropriate for the purpose in (b) above. In fact, for purpose (b), both Moody’s and the vast majority of financial professionals feel that a discount rate of about 5.5% (today) is appropriate. and if the funding ratios were re-calculated using 5.5% (instead of the 7.9%), the “official” funding ratios would decrease by roughly 1/3 (per Moody’s calculations), meaning that the NJ’s Local Plan funding-rate average of 75% would decrease to about 50%. To put that in perspective, under US Gov’t regulation of Private Sector Pension Plans, a funding ratio of below 60% is considered SO POOR that the Plan would not be allowed to credit any further pension accruals until that ratio grew to above 60%. Unfortunately, the same re-calculation would put the funding ratio for the State’s Plans at close to 40% and most pension experts believe that it not possible to recover from such a position.

          The only point I’m making here is that ALL of NJ’s Plans are in VERY VERY poor shape when valued using what most financial professionals consdider to be realistic and appropriate assumptions.

          (2) You said … “I support a hybrid system similar to what Rhode Island is proposing as long as the State keeps its hands off the money, makes its matching contribution and sticks to a formula that is a sliding scale of DB vs DC upon retirement. Also employees must have full control of their investment options not the State.”

          While I’m aware of major changes in RI, I do not know the specific plan changes for the future service of current workers so I can’t comment. I know that (for post-1986 hires), the retirement package for Federal employees is the composite of a DB pension with a 1% per-year-of-service formula and a DC Plan with a 4% (?) taxpayer contribution. You should note that employees can only have “full control of their investment options” under a true DC Plan (managed with individual employee accounts). Some Plans considered to be hybrids are part traditional DB Plans combined with a “Cash Balance” plan. While a “Cash Balance” Plan LOOKS LIKE a 401K-style DC Plan, legally it’s a DB Plan with commingled assets (with no “legal” individual account) and invested by the Plan Sponsor.

          It sounds like you are suggesting something akin to the package granted Federal employees. I would (somewhat grudgingly) support that. While quite a bit more generous than the retirement packages typically granted Private Sector workers, it’s FAR less generous then MOST current State and Local Public Sector worker Plans in place today.

          (3) You said … “Pension payments must be reigned in. No double dipping, no padding and no multiple pensions. Disability pensions, if you work you lose dollar for dollar. I know this will not happen in my lifetime.”

          I agree completely … although even greater pension/benefit reform is needed (because the BASIC pension formulas and the generous “provisions” such as very young full retirement ages, and COLAs still in place in most Plans are VERY costly and MUCH MUCH more generous than pensiona granted comparable Private Sector workers ….. as is the continuation of free or heavily subsidized Public Sector retiree healthcare RARELY granted Private Sector workers any longer) …. and it needs to happen very VERY SOON.

          (4) You said …”It is my belief that if the State and Locals had made its required contributions (which were reasonable) over the years the State and Local funds would be in much better shape.”

          Of course the Plans would be in better shape had all required contributions (the “ARCs” … and w/o NJ’s phoney 7-year grade-in to full funding) been made annually, but when you say “which were reasonable”, here we disagree.

          I have addressed this point before. The ARC calculation IS A FUNCTION OF the generosity of the pension Plan ….. the more generous the Plan the greater the ARC. so to say that the ARCs “were reasonable” presupposes that the level of Plan generosity is ALSO reasonable. As you know I strongly disagree with this.

          I believe it appropriate, reasonable, and fair for “Total Compensation” (cash pay plus pensions plus benefits) to be reasonably EQUAL for Public and Private Sector workers in comparable occupations (or where not directly comparable, where the jobs entail or require reasonably comparable experience, education, risks, and skill sets).

          While there are many studies of Public Sector Vs Private Sector compensation , the results are so conflicting that it’s obvious that the study authors are either biased, or the source of the funding for the study led to biased results.

          The best I can tell (honestly) is that (via looking over many studies) for high level professionals (e. g., doctors, attorneys, high-leveI IT professionals, etc.) that “cash pay” is higher in the Private Sector, and for most others, the “cash pay” is higher in the Public Sector, with the degree to which it is higher increasing inversely with salary level. In your specific (high-level) position, it is certainly possible that your cash pay might have been greater in a Private Sector job with comparable responsibilities.

          But when we move on to a discussion of pensions and benefits (both while active and in retirement) things change materially. The easy one is benefits. While active, healthcare benefits in the Public Sector (on average) tend to be of the “Cadillac” variety (generous coverage and benefits, low deductibles, low copays, low coinsurance percentages, and modest premiums), while in the Private Sector (other than for high-level executives with special deals) the generosity of health coverage for actives would reasonable be described as ranging from “Yugo to Buick” coverage.

          The disparity is FAR GREATER for RETIREE healthcare coverage. In the Private Sector, employer-sponsored retiree healthcare subsidies have all but disappeared. Where it remains, it usually takes the form of an annual contribution (of say $300) into an HSA (Health Savings Account). Up until a few years ago, Retiree healthcare coverage in the Public Sector was typically the same as that provided to actives…… and actually it was BETTER because by pooling active and retiree claim costs, and calculating premiums on the experience of both groups combined, the retirees (an older and hence sicker group on average) got a better deal. While in recent years there have been MODEST pullback form the previous level of Public Sector retiree coverage, it remains materially in place almost everywhere and at HUGE cost, almost all of which is NOT paid for by the workers, but by Taxpayers … via pay-as-you-go general budget expense disbursements. By any reasonable measure (especially with MOST public Sector workers earning MORE in “cash pay” than their Private Sector counterparts, and EQUAL “Total Compensation” the reasonable goal), there is no reasonable justification for Taxpayers to fund the cost of a benefit for Public Sector workers that they rarely get from their employers.

          A similar situation exits with respect to Public vs Private Sector pensions. I have posted many previous comments mathematically demonstrating the material Public Sector pension “advantage” (that I’m sure you can locate) so I’m not going to paste one here, but (honestly) it is accurate to say that when considering BOTH the value of the richer Public Sector pension “formulas” AND the MUCH more generous Public Sector pension “provisions” (such as very young full unreduced early retirement ages, COLA increases … noting that they are now suspended in NJ), Public Sector pensions are always AT LEAST 2x greater in value at retirement that those of their Private Sector counterparts making the SAME pay, retiring at the SAME age, and having the SAME years of service …. and that “AT LEAST 2x greater”, is MOST OFTEN 3x-4x greater, and for safety workers, OFTEN 4x-6x greater. These pensions are so generous that the employee’s own contributions (INCLUDING all the investment earnings thereon) RARELY accumulate to a sum sufficient to purchase more than 10-20% of the total cost of their promised pensions.

          As is the case with retiree healthcare (above), by any reasonable measure (again, with MOST public Sector workers earning MORE in “cash pay” than their Private Sector counterparts, and EQUAL “Total Compensation” the reasonable goal), there is no reasonable justification for Taxpayers to fund vast majority of the cost of pensions for Public Sector workers that are routinely MULTIPLES greater in value at retirement than what they typically receive from their employers.

          Reply

  7. Posted by Javagold on June 21, 2014 at 9:21 pm

    The public takers protest too much , me thinks.

    Now they are talking too each other……reassuring themselves. ….. continue to keep their heads in the sand, it’s easier there.

    The dollar collapse is coming. You pension ponzi pyramid is finished. If you didn’t get out by now, you LOSE.

    Reply

  8. Posted by Tough Love on June 23, 2014 at 12:19 am

    Said a Christie spokesman, Kevin Roberts, responding to Sweeney’s announcement today…………………….

    “Raising taxes drives businesses and citizens out of New Jersey and makes our problems worse,” he continued, pushing for changes to be made instead to public workers’ benefit plans. Christie has called these benefits “unsustainable” but has yet to present plans to revise them.

    “The sins of the past require very difficult but necessary choices — not new taxes that place New Jersey at a significant competitive disadvantage to neighboring states and does not deal with the root problem — out of control pension and benefit costs,”

    Reply

  9. Posted by Javagold on June 23, 2014 at 1:20 am

    Put them all on Obamacare. It’s the easiest place to start.

    Reply

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