What the Pension Panel Failed To Say

The report did a good job of piecing together available public information but anyone could have done that. What this panel of experts was supposed, and failed, to do is bring their knowledge of the truth of the situation to the general public.  Perhaps some did not possess that knowledge and others who did wimped out but here is what should have been in the report:

Actuaries lie

A 54% funded ratio and $37 billion shortfall for the state portion of the New Jersey pension sounds bad enough but people should be aware that these figures are generated by actuaries whose sole responsibility to their politician clients is to keep contribution amounts low.  Ask yourself how a plan returning 16.9% in trust earnings when it is assuming 7.9% worsens their shortfall.  It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public plan actuaries are paid for when right means higher contributions. Then there is the smoothing canard that the panel completely ignores, quoting the $44 billion actuarial value of assets as real rather than the $39.5 billion market value.

Politicians cheat

$14,9 billion in skipped ARC payments under Christie in cahoots with the legislature who not only get to decide how much they put in but they also get to brag that their selected mini-contributions are the full statutorily required amounts though they get to define what is statutorily required.

Benefits are protected

Hinted at on page 18:

One of the reasons the reforms described above have had little impact on the unfunded liability is that many of them do not apply to all current employees.

And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing).  That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.

Hybrid plans won’t work here

Though a Defined Contribution plan is the only type of plan that governments, run by political considerations and without independent funding discipline, should be allowed to sponsor moving new employees into these plans would only worsen the underfunding since a valuable input into the ponzi scheme New Jersey currently runs (employee contributions) would be shut off and new hires who are typically younger could wind up getting even higher benefits than under an age-weighted defined benefit system.  In the private sector the shift to cash balance plans worked because older employees could be forced (or tricked into) accepting them.  It would take a massive amount of ‘creativity’ and will to work the same magic in the public sector where employees have more leverage and  politicians are not bargaining with their own money.

16 responses to this post.

  1. Posted by Anonymous on September 26, 2014 at 12:42 pm

    Read it and weep, TL!!! And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing). That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.

    Reply

    • Posted by Tough Love on September 26, 2014 at 1:59 pm

      The “math” and “reality”always wins in the endgame ….. and there never was, isn’t now, and never will be sufficient funds to pay anywhere near the grossly excessive promised Public Sector pensions.

      Reply

      • Posted by Anonymous on September 27, 2014 at 10:55 pm

        Yes there was until Christie Whitman emptied the till with false promises and you cant prove otherwise although you will not hesitate
        to swear that you can.

        Reply

  2. Posted by truthnolie on September 26, 2014 at 12:45 pm

    Once again I need to point out the habit here of painting everyone with the same brush.

    The LOCAL systems of PFRS (almost 77% funded) and PERS (74%) are nowhere near the dire circumstances as the State parts and are in fact well supported (and should continue to remain stable with the increased pension & h/c contributions forced by Chap 78, etc.)

    However, most fail to acknowledge this and lump all of the systems together when it should be plainly obvious that it is the State systems that are in need of a solution.

    Anyone who is rational and logical (i.e.; not TL) should be able to recognize this fact and at least consider it when discussing the issue.

    Reply

    • Posted by Tough Love on September 26, 2014 at 2:02 pm

      Local systems, yes about 75% funded using the 7.9% NJ Plan discount rate, and just about 50% funded using the process Moody’s currently uses to evaluate municipal Gov’t creditworthiness.

      Reply

  3. Posted by Anonymous on September 26, 2014 at 12:58 pm

    Truthnolie, with all due respect. I am sure that PERS is the for STATE WORKERS, as I was in it and worked for the state for 30 years. Not sure what you are referring by saying PERS is not STATE. Also I dont think it is funded 74 percent, do you John?

    Reply

    • They obviously allocate earnings among the plans in proportion to assets and since localities have not been skipping contributions as much they get a greater proportion of the assets though the 74% number is inflated like the State’s 54% number.

      PERS includes both state and local employees, as does PFRS, and the breakdown of assets are done within the valuation with the state (theoretically) contributing for their people and the individual localities for theirs.

      Reply

      • Posted by Anonymous on September 26, 2014 at 2:03 pm

        What other pension plan is there for state employees besides PERS?

        Reply

        • Posted by Anonymous on September 26, 2014 at 2:26 pm

          PERS State which is for STATE workers.
          PERS LOCAL for employees of municipalities, counties etc
          PFRS STATE for State law enforcement(corrections etc)
          PFRS LOCAL for Local law enforcement.
          TPAF which is for all teachers but paid for by the State
          SPRS for State Troopers and Commissioned officers of the State Police

          There are more you can get info here:

          http://www.state.nj.us/treasury/pensions/retiree-home.shtml

          Reply

      • Posted by Anonymous on September 28, 2014 at 10:08 am

        Hi John,
        I am in PERS and I worked for the state.After 39 years I am getting 1400 per month. Do you think they will either stop my pension completely or reduce it and how much. When will this take place in your opinion? Thanks

        Reply

        • Th problem with guessing what they will do is difficult since they are making decisions without perfect information and irrationally. Who would have thought that a solution to having to make large pension contributions was to pass law saying you would only have to put in 1/5th of it (and then 1/7th the next time around)? Who thinks that way but someone unlikely to face any consequences?

          But if I had to guess I’d say the pension won’t be reduced per se but they will make you pay for health care insurance probably as some percentage of your pension, which is a way of keeping their overall benefit costs flat.

          Reply

  4. Posted by Anonymous on September 28, 2014 at 11:51 am

    I certainly cant afford to pay for health insurance, so I would have to let it lapse and either go to a clinic or sign up for Obama care,right?

    Reply

    • Posted by Tough Love on September 29, 2014 at 5:40 pm

      Gee …. sounds like you’re describing the typical Private Sector worker …. which is why very few can afford to retire before they reach age 65.

      Why do YOU deserve a better deal on the Taxpayers’ dime ?

      Reply

  5. “What the Penison Panel Failed To Say”

    PENISon Panel……Ha….quite fitting typo (if it was a typo) as the panel is staffed with people with no conscience…..kinda like that old saying that ” a stiff p&#@! has no conscience”

    Lol

    Reply

    • Posted by Tough Love on September 29, 2014 at 5:46 pm

      The Commission members are likely well above average income and wealth, but conscientiously trying to address what is assuredly the biggest problem NJ has ever had.

      Many of those with pain headed there way deserve it for their insatiable greed.

      Reply

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