Q & A & The Truth on New Jersey Pensions

From an AP story posted today with my comments/corrections:

Gov. Chris Christie says he will unveil a plan this summer to rein in public workers’ pension costs, which he says are taking up too much taxpayer money.

Even ahead of his announcement, the political debate has ramped up. Christie’s summertime town-hall style meetings are called “No Pain, No Gain” and are addressing pensions. He even advertised the talks with a movie trailer-style video that his opponents quickly ridiculed. Public workers protested the first summer meeting last week and expect to keep at it.

Here is a look at problems surrounding the state public employee pensions:

Q: How did this happen in New Jersey?

A: Beginning in the 1990s, governors of both parties skipped or skimped on pension contributions to fund other priorities. Christie promised to change that. In deals in 2010 and 2011, he agreed to fully fund the state’s share of the pensions for current employees and over seven years to make up for unfunded liabilities caused by missed or reduced payments.

Real A: Christie agreed to nothing of the kind.  What he did was promise to take whatever contributions the actuaries came up with and divide it by 7 that first year with additional factors of 1/7th added on to give the impression that the plan is heading for full funding when it’s deliberately adding to the underfunding.

Q: Just how big is the pension system, and how deep are its problems?

A: From July 1, 2012, through June 30, 2013, the system paid out $8.8 billion to 293,000 retirees — an average of about $30,000 each. Over that period, about 500,000 public employees paid into the system. At the end of that period, the funds held $82 billion and were considered 65 percent funded. They had an accrued unfunded liability of $47 billion. Christie’s office and the state treasurer’s office didn’t respond to queries last week about how long the funds could remain viable without major changes.

Real 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 assumptions.

Q: Did workers have to sacrifice under the earlier changes?

A: Yes. Government workers saw their contributions rise and their retirement age increase. Current retirees also had cost-of-living increases suspended.

Real A: Everyone had cost-of-living increases suspended which allowed all liability figures to be reduced thus lowering contributions further – but that was for the moment and they are about to come back (cost-of-living adjustments I mean, not higher contributions).

Q: Has this helped fix the problem?

A: Unions and most Democratic lawmakers have been satisfied. But this year, Christie laid the groundwork for further changes, saying the cost to taxpayers for pensions is too much. Still, he initially planned to make the state’s full $2.25 billion payment to pension plans due in the fiscal year that began July 1.

But in May, after a surprise revenue shortfall, he changed course in the name of balancing the state budget. He used his executive powers to skip part of the payment in June and reduced the payment for fiscal 2015. He says he is paying the full contribution for current employees but skipping the catch-up payments. Pension payments to retirees weren’t changed because of the smaller payment into the fund.

Real A: No.  It’s a fake solution that dug the hole deeper and lost us four years.

Q: Is that legal?

A: A judge found that the state has a legal obligation to make its previously promised contributions but that the budget crunch at the end of fiscal 2014 was a valid reason not to pay the full amount now. Unions for public workers are planning further litigation to try to force Christie to make a full payment in this budget year.

Real A: It’s New Jersey where anything can be made legal.

Q: What changes does Christie want to make?

A: He says he intends to offer a proposal by the end of August. He is considering requiring employees to pay more, raising the retirement age and cutting benefits. He said during a town hall meeting in Long Beach Township last week that he doesn’t intend to reduce the benefits of current retirees. But making changes would require approval from the Legislature.

Real A: Whatever final solutions his campaign staff at Wannsee on the Delaware come up with.

Q: What about switching from a defined benefit program to a 401(k)-style defined contribution plan to save money?

A: Christie could propose doing something like that. But critics say that could hurt efforts to make good on commitments to those who have retired or will retire soon because there would not be money from active employees entering the pension system.

Real A: Depending on the contribution amounts it solves the problem for younger public employees now fueling a ponzi scheme but it would move away from the funding opacity and artificially reduced contributions that a defined benefit system using flawed actuarial assumptions has so ably provided over the last few decades.

Q: How will the Legislature receive whatever Christie proposes?

A: Most likely not warmly. Senate President Steve Sweeney isn’t warm to the idea of pension plan changes. “We fixed it in 2011,” he said last week. Democratic lawmakers and union leaders say Christie lost some credibility on the issue by reducing payments. “Make your payments as you agreed and the law requires, and then we can have a talk,” said Hetty Rosenstein, New Jersey director of the Communication Workers of America, the largest union of New Jersey state government employees.

Real A: With this legislature anything they receive short of his resignation will be met with foot-stomping, pouting, threats to shut down government, and eventual capitulation.

24 responses to this post.

  1. Posted by Anonymous on July 26, 2014 at 5:19 pm

    No pain no gain, It is laughable coming from Christie. He has no idea what that means, He doesnt even know how rein in his own eating habits.

    Reply

  2. Posted by Javagold on July 26, 2014 at 6:02 pm

    the Jersey Lap Band Pension Reform…

    Reply

  3. Posted by Anonymous on July 26, 2014 at 6:54 pm

    He said during a town hall meeting in Long Beach Township last week that he doesn’t intend to reduce the benefits of current retirees HAVENT WE LEARNED YET THAT THIS IS MERELY A HUGE LIE TO MAKE HIMSELF LOOK GOOD. HE HAS NOT INTEND TO DO ANYTHING TO HELP THE PENSION SYSTEM. ALL HE DOES IT TALK SO HE CAN SAY, HEY I TRIED WHEN IN REALITY ALL HE DID WAS GIVE LIP SERVICE KNOWING FULL WELL HE HAD NO PLAN THAT HAD ANY CHANCE OF SUCCEEDING

    Reply

    • Posted by truthnolie on July 27, 2014 at 3:34 pm

      He CAN’T reduce the pension benefit that a retiree is ALREADY receiving….it was attached at the time of retirement an cannot be revoked….don’t believe the hype.

      Changes might be made to current workers (although those vested already might have a claim) and definitely for new hires and those not yet vested.

      Where you have to watch Gov. Blub is messing with retiree co-pays and coverage premiums – He is in league with the insurance underworld (Norcross, etc.) so he’s liable to try any scam in combination with that scumbag to underhandedly & unfairly raise the copay/premiums.

      ALSO…..a point many fail to understand is that if you retired from a municipality you would go by the terms of the contract you left under (re: healthcare, dependent coverages, etc.)

      Reply

    • Reducing benefits is different from not reducing them but requiring currents and retirees to pay in more if they wish to keep them.

      Reply

      • Posted by truthnolie on July 27, 2014 at 6:25 pm

        And REQUIRING retirees to pay more in order to keep benefits that they had AT THE TIME THEY RETIRED would be seen by any (non) kangaroo court as revocation AND alteration of the incurred benefit that was triggered at the time of retirement. Therefore, any forced change (either a law or a requirement to pay more to keep them) would be a coercion & violation of the “non-forfeitable right” of the retiree’s rights.

        Reply

        • Currents are already required to pay into pensions and health benefits. No reason that % can’t be raised again to keep the coffers afloat as part of the “shared sacrifice” As far as retiree healthcare benefits, they are on the chopping block based on what has been posted on past blogs at this site.

          Reply

          • Posted by truthnolie on July 28, 2014 at 12:26 pm

            “As far as retiree healthcare benefits, they are on the chopping block based on what has been posted on past blogs at this site.”

            Again….don’t believe the hype or everything you hear, especially the blather from Christie and his minions who are pretty much performing a King Lear public performance.

            Also, you and other speak of retiree healthcare benefits like it is one whole combined thing which it is not. There is the state and then there are all the municipalities which all have varying healthcare agreements/coverages upon an employee’s retirement…..some of these towns don’t even use the state health plan but have there own exchange group which they insure through.

            I keep posting this but everyone either ignores it or can’t understand it.

  4. Posted by Eric on July 26, 2014 at 8:06 pm

    John:
    For your viewers who may not be familiar with Wannsee, it is the conference chaired by Reinhart Heydrich who put forth the “final solution” which was the killing of the Jews of Europe during the second world war.
    Heydrich was history’s greatest mass murderer by the sheer number of people who were put to death under his direction. He was also known as the ‘hangman.”
    As the leader of the Gestopo, he was feared by Hitler’s high command. His “aryan’ features of blonde hair and athletic build made him Hitler’s hand picked successor. He was also known for possessing a brilliant mind and was an accomplished fencer and violinist. Very strange indeed.
    More feared than Hitler himself, Heydrich was assassinated by a car bomb at the direction of Winston Churchill. Heydrich did not die immediately of his wounds and pursued his assassins on foot with a hand gun prior to collapsing on the street.
    End of my history lesson.
    Eric

    Reply

    • Eric,

      Most of what I know about the Wannsee conference came from a movie:
      http://www.imdb.com/title/tt0266425/
      and I suspect many here know about it too which is why I did not feature it as prominently as I intended in this blog which was originally titled ‘Don’t Wannsee’. I did not want to trivialize the holocaust and I didn’t think I could make the connection between those German leaders in Wannsee, whose thinking wasn’t really representative of the majority of the German people, coming up with the final solution
      and Christie’s people in Trenton coming up a plan, rooted in ignorance and designed for political expediency, on what to do with state pensions that Christie is not ready to reveal yet. In both cases the majority would likely be outraged were they to understand what their ‘leaders’ were concocting in their name though secretly they are grateful to be out of it as they don’t want to see (hence the title) or be told the details of how a perceived problem were being solved.
      It’s still a valid point that I might return to but I didn’t feel I could make it work now without coming off as tasteless so I abandoned the main blog but kept that tidbit.

      Reply

  5. Posted by Eric on July 26, 2014 at 11:11 pm

    John:
    I understand and I was not critical of you. Most Germans had no idea about the holocaust. If one asked too many questions, one was removed in the middle of the night never to be heard of or seen again. This happened not only in Germany, but also in the occupied territories. I have relatives in the Netherlands. They told me that if a parent voiced opposition to a procedure, and the child “parroted” the adult’s position in school, the parent would be removed in the middle of the night. Germans and those occupied by Germany lived in constant fear and could not question the authority imposed upon them by the government. I am sure there are some exceptions that your readers may know. I have spoken to those whose families were taken to death camps and to those who were taken to labor camps. Some POWs I have spoken with, and have come to know, were even treated quite well believe it or not.
    I have spoken to a woman, who was Jewish,and her entire family had been murdered in a death camp. She told me that people thought that JFK was a charismatic speaker. She said whenever Hitler spoke, people were left spell bound. JFK could not speak at all compared to Hitler. Her entire face actually lit up telling me that as a speaker Hitler was almost something out of this world in that he would maintain an intoxicating mental grip on his entire audience that other speakers could never emulate. I have read about this in many books, however, it was fascinating watching her entire face light up as she described Hitler’s magnificence in speaking despite the fact that the SOB murdered her family. That is something I will never forget. She despised Hitler, yet gave him his due in his speaking ability, which according to her, was second to no one on the planet. I found her most interesting. I also cannot contemplate the gravity of her loss.
    As to fixing the pension problem, we were told that it had been fixed. The “publics” were to send cc thank you notes. Then there was the bragging about “reaching across the aisle” and for Washington to watch to see how it is done in Jersey. Then we were told that anyone with any sense knows that it is not fixed since it was simply not sustainable in the first place. Why would a politician say these things? I am perplexed. It sounds like political suicide to me.Why not lie about it and adamantly say it is fixed and just “ride it out” to the White House? What am I missing? It will not collapse on his watch. Please help me figure this one out.
    Thanks.
    Eric

    Reply

    • I see two possibilities for this push now (and one is a real stretch):

      1) Christie is finally getting honest advice from someone who knows pensions

      2) There is something they’re not telling us about the assets and they are desperate for ready cash which they intend to get from making retirees pay more for their pensions and health care that will go into the trust to provide liquidity to pay pensions.

      Reply

  6. Posted by Eric on July 27, 2014 at 12:06 am

    John:
    I vote for door number 2.
    Eric

    Reply

  7. Posted by Anonymous on July 27, 2014 at 12:21 am

    I knew an old german woman who was 102 in 1992, she told me that Hitler was good for Germany. It really shocked me when she said that.

    Reply

  8. Posted by LGreene on July 27, 2014 at 8:28 am

    Sadly this is an ongoing conflict that has no good end. Unlike Detroit, States cant declare bankruptcy.

    SO, while the Governor underpays the pension fund, the fund has outflows to pay the current retirees, which creates an even smaller base to earn from investments to pay the future benefits.

    During the past two years, while the stock market is performing well, the fund has less to invest which gives it even less money to pay the benefits and depletes the fund even faster.

    While we can debate the cause of the problem ( too generous benefits , non payment by State etc. ) , It is clear that severely underfunding the plan, and having it pay retirees especially while the market is doing well doesn’t help.

    There are ways to fix New Jersey’s pension system, but not by wrecking it and making it worse,

    Reply

  9. Posted by Eric on July 27, 2014 at 12:22 pm

    LGreene:
    I know that Seth Grossman, who ran for governor, discussed “capping” the amounts paid to retirees in order to ensure that the retirees who get modest pensions are not ‘out on the street” if a percentage reduction on all amounts were enacted.
    Eric

    Reply

  10. What has gone UNNOTICED in this fiscal collapse is the fact that a few weeks ago the Governor signed off on a 6 year extension to an agreement that authorizes Prudential to sell its RETAIL PRICED COMMISSIONED BASED MUTUAL FUNDS TO STATE EMPLOYEES via their Deferred Compensation Plan. Prudential charges the participant $3,000.00 annually for each $100,000 of account value. The Governor, as a former federal employee participates in the Federal Thrift Savings Plan (TSP). He pays $30.00 annually for each $100,000 of account value.

    That said, the Governor’s message to his co-workers is quite clear:

    1. Accept less, MUCH less in pension income.
    2. Even though the state does not contribute to your supplemental Deferred Compensation Plan account I EXPECT you to pay commissions to Prudential. I am quite aware of the fact that the State and City of New York offer Deferred Compensation Plans that cost their workers $400.00 annually for each $100,000 of account value. I just do not give a damn!

    Governor: HAVE YOU NO SHAME?

    Reply

    • Some may not get THE point I am making. I’ll give it another try.

      The NJ Taxpayer is telling us that the current pension payouts are unsustainable—-this leads a worker to say that more of the retirement obligation will be placed on the worker via his/her supplemental savings plan (New Jersey State Employees Deferred Compensation Plan)—this leads one to say that only a mean hearted/spirited taxpayer would establish an EXPENSIVE savings plan rather than a de minimus cost one. WHAT SAY YOU GOVERNOR?

      Reply

      • The taxpayers aren’t telling us the current pension payouts are unsustainable, the math is telling us that based on Mr. Bury’s research and other actuaries/financial experts who are not beholden to the state.

        Reply

        • Yes, it is the math. That said, it is also the math that says the employee must have a de minimus cost Supplemental Deferred Compensation Plan? I trust you agree. If you do, should not the taxpayer’s rep, the Governor, assure that the employee has such a Plan? Yet he just signed off on a high cost plan. Why?

          Check out the New Jersey State Employees Deferred Compensation Plan with its retail priced commission based mutual funds. While the NJ Defined Benefit formula is one that NJ taxpayers do not have because the math tells us its too expensive, how many of them would substitute the NJSEDCP for the 401(k) style plan they do have?

          Reply

  11. Posted by alex hidell on July 28, 2014 at 9:40 am

    Hello Mr. Bury,

    For some of the latecomers to your blog, could you please identify how you arrive at an unfunded liability ($160 billion) so much greater than the $47 billion quoted in the press?

    Also, how do you arrive at the 50% figure of the money necessary to pay retirees? Thanks.

    Alex

    Reply

  12. Posted by truthnolie on July 28, 2014 at 12:28 pm

    Wow….a day or so and NO replies from TL…..hmmm….maybe she has gone to a better place – in her case a padded room with Christie posters all around which is best for her…..and without internet access which is even better for us!

    Reply

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