Not Scaring Anybody

Nobody is any more worried now than they were before the New Jersey Pension Study Commission report came out.  Yes, “[t]his problem is dire and will only become much worse if meaningful steps are not taken quickly” but what does that really mean to anyone?

First off, the situation could become much worse even if meaningful steps are taken if those steps are stupid (i.e. arbitrarily reducing contributions that will need to be paid later or cutting COLAs that will need to be reinstated).

To understand the sad state of the New Jersey retirement system it is best to look at some numbers (those not susceptible to manipulation) from a valuation report (June 30, 2013 TPAF).

The Numbers

  • Active Members: 151,318
  • Annual Member Contributions: $841,921,677
  • Accumulated Member Contributions: $10,145,584,757
  • Retirees: 91,729
  • Total Annual Pensions for Retirees: $3,591,007,462
  • Terminated Vested Participants: 351
  • Total Annual Pensions for VTs: $5,073,360
  • Actuarial Value of Assets: $30,469,857,304
  • Market Value of Assets: $26,859,612,370

Points to Be Made

  • To annuitize $3.6 billion in annual payments it would take about $40 billion considering the number of J&S forms of benefit and comparatively early retirements
  • Actuarial Value of Assets is a fictional number plugged into the methodology to determine contribution amounts solely to understate those contributions
  • Of the $27 billion in Market Value of Assets there is maybe $7 billion in ‘alternative investments’ that are either illiquid, overstated in value, or both.
  • Accumulated Employee contributions ($10 billion) for those not receiving benefits must be returned to those participants upon annuitization of retiree benefits

 Scary Conclusions

  1. For retirees there may be about $15 billion to cover $40 billion in liabilities and that’s ONLY for retirees leaving absolutely NOTHING for the 151,669 participants who have not yet started receiving monthly benefits except, for now, the refund of their contributions.
  2. There is an equally good chance that Conclusion #1 is overly optimistic

 

 

22 responses to this post.

  1. Posted by Javagold on September 28, 2014 at 1:54 pm

    Perhaps why this is why The Fed owns almost everything ……There is NO Market …..Collapse !!!!!!

    Reply

  2. Posted by Tough Love on September 28, 2014 at 2:34 pm

    John, Thought unstated, I believe your $40 Billion to annuitize the $3.6 Billion of annual pension payments assumes that the COLAs will not be reinstated. If they are reinstated, the $40 Billion is likely just about $50 Billion….. and even lower for retroactive COLAs due.

    So, in your Conclusion #1, there is likely $15 Billion to cover $50 Billion in liabilities due just the retirees.

    Reply

    • Only a wild guess since I’m not privy to what the decision makers are really planning but I don’t see COLAs ever returning. I think if any deal is worked out (after the typical court-related delays) it will include a suspension of COLAs but, if not, then conclusion #2 applies.

      Reply

  3. Posted by Tough Love on September 28, 2014 at 9:25 pm

    Hey Anonymous(s) …. does Plan Assets sufficient to pay JUST $15 Billion of the $40-$50 Billion owed just those ALREADY retired (leaving ZERO, beyond a return of employee contributions towards the PAST service accruals of all actives) leave you with a warm and fuzzy feeling ?

    If not, perhaps you should consider a BETTER plan than simply bashing Christie (who INHERITED this insurmountable grossly excess BENEFIT-LEVEL headache from past administrations) …. like accepting a VERY materially 50% reduction in future service accruals, and nothing but $300-$500 annually into a HSA towards retiree healthcare.

    That’s still better than the vast majority of what Private Sector workers get from their employers …… and “denial” is NOT a good plan.

    Reply

    • Posted by Anonymous on September 29, 2014 at 12:27 am

      Why bother? We have been lied to by every administration, and now you want us to play nice and willingly give up half our benefits? If you are correct and 50% is all we get, then let it be determined by the courts.

      Reply

      • Posted by Anonymous on September 29, 2014 at 9:28 pm

        TL, it really is scary how you want to control everyone and everything. And of course much of what you say is not even remote close to be factual. You also think that most state workers are idiots and contribute nothing to society, so why not ask the governor if he can fire them. After all your opinion is the only important one, right?

        Reply

        • Posted by Tough Love on September 29, 2014 at 9:38 pm

          Massive outsourcing would be a marvelous recommendation from the Commission.studying pension reform.

          Reply

          • Posted by Anonymous on September 29, 2014 at 10:32 pm

            Another example of how your ideas are not based in reality. you have repeated your desire to reduce pensions by 50 percent over and over to point of obsessive compulsive, now you are most likely going to do the same thing regarding your desperate wish to have me banned because I offer a challenge to your fantasy based solutions.

          • Posted by Tough Love on September 30, 2014 at 8:24 am

            Fantasy ONLY because our Democratic Legislature remains desirous of the continued flow of Public Sector Union money and election support.

    • Posted by Anonymous on September 29, 2014 at 8:16 am

      TL she is a snake oil salesman, her ware is wasted words.

      Reply

      • Posted by Tough Love on September 29, 2014 at 10:11 am

        John, Is it productive to allow this imbecile to post on your blog ?

        Reply

        • Posted by Anonymous on September 29, 2014 at 7:32 pm

          TL, you are not a fan of the constitution are you? You want to silence anyone who does not agree with you, that says a lot about you. If it bothers you what someone has to say, why not ignore them instead of showing them how much it disturbs you? And it shocking that you feel that you have the right to call someone an imbecile while at the same time asking to remove their right to post.

          Reply

          • Posted by Tough Love on September 29, 2014 at 9:00 pm

            If that’s you above, you never have anything “useful” to contribute. That along which the often-included stupidity (such as including “Blah, blah, blah, blah, blah, blah, blah, blah.”) is why John should banish you.

  4. Posted by Anonymous on September 29, 2014 at 10:57 am

    Hi John,

    What does the $5.1 million in annual pension refer to?

    You have $3.6 billion in annual pensions listed before that.

    Eric

    Reply

    • That’s the Total Annual Pensions for the 351 terminated participants who are not yet at retirement age. I changed the line description for clarity. It’s there more for completeness and to show how comparatively few people leave early.

      Reply

  5. Posted by Eric on September 30, 2014 at 2:53 am

    John:
    As you probably are aware, the prior post was not made by me, but by Tough Love’s good pal, Anonymous.
    Eric

    Reply

    • Posted by Anonymous on September 30, 2014 at 4:04 am

      I did not make that post, but there are many anonymous’ and probably many that are tough loves good pals. But one thing is for sure, I dont make every anonymous commment. Maybe there is someone else named Eric?

      Reply

  6. Posted by S and P 500 on September 30, 2014 at 5:26 am

    If I read the numbers correctly, it looks like the NJ pension fund will be broke in 10 to 15 years. John, is there anybody on these pension boards that have any experience with investing? Has anybody on these boards ever had a Charles Schwab account and bought IBM, Starbucks, Invesco Bond Fund, etc and tried to make their money grow 8% a year? Or do they just make pension promises to union members and let the next governor try and come up with the money? Do they think that the city can keep on borrowing and raising taxes? I know that teachers who are clueless about the stock market will tell you that their pensions are affordable but are these the kinds of people on the pension boards?

    Reply

    • Posted by Tough Love on September 30, 2014 at 8:38 am

      Pernsion Boards stuffed with Labor/Union loyalists with little to zero financial expertise is very typical. Not sure of the NJ Board member’s backgrounds, but the following is a clip from the bio of one CalPERS (CA’s giant pension system) Board member. While he has undergone some training in pension and health administration, relevant practical experience is completely lacking.

      “…..he is currently employed as a glazing specialist. He has also worked as a school bus driver and instructional assistant for special needs students. ”

      ” is a past president of the California School Employees Association and past executive vice president of the California Labor Federation.”

      Reply

      • Posted by Anonymous on September 30, 2014 at 1:39 pm

        Union negotiators are well versed in retirement financial schemes, you have to be to present the employees positions.

        Reply

    • What I see are a bunch of the governor’s appointments whose only mission is to keep contributions down going against a bunch of Union appointees (likely fewer) who want the status quo or more benefits. Investment experience isn’t a requisite though it would be nice but actuarial experience should be a prerequisite for sitting on these boards. It’s not. Allegiance to the ones who appointed you is.

      Reply

  7. Posted by Eric on September 30, 2014 at 9:06 am

    S&P:
    Did you calculate a return of contributions in your calculation for “non-retireds”.
    Eric

    Reply

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