Call the Propagandists’ Bluff

If Governor Christie really intended to replace the defined benefit system in New Jersey with 401(k)s for public employees then a report slapped together by a couple of liberal think tanks might have done him a big favor.  Think about it. The scare headline these union-backed toadies want to get out there is:

Ending pensions could cost NJ taxpayers $42 billion

Of course that’s a bogus number taken from some study on the Pennsylvania plan and based on sheer conjecture.  But, if it were true…….

Wouldn’t New Jersey public employees and retirees be screaming for 401(k) plans since that $42 billion (after financial adviser fees) would all be coming from NJ taxpayers but going to THEM!  What are those morons at the Keystone Research Center and New Jersey Policy Perspective thinking? Whose side are they on?

I can see Christie trumpeting this report on the steps of the statehouse when he announces the freeze of defined benefit accruals and the inception of a brand new 401(k) system that, though it would cost us $42 billion more, is exactly what you deserve.

Which reminds me of this classic clip from episode 5, season 1 of Yes Minister on adopting values that suit your purpose of the moment:

43 responses to this post.

    • Posted by Tough Love on October 9, 2014 at 10:28 am

      The Commission member are actuaries and financial experts. They are fully aware that a DC Plan (reasonably near in generosity to those typically granted Private Sector workers) would SAVE huge amounts of money.

      90+% of PRIVATE Sector Retirement Plans are either 401K Plans or Cash Balance Plans (which function similar to DC, not DB Plans). And these Private Plan sponsors are certainly NOT looking to be more generous than absolutely necessary.

      Anyone who takes that Report at face value is a simply WAY uninformed (and lacking an understanding of DB Plan funding), a fool, a charlatan. or Public Sector workers, who grasps for straws at ANYTHING that might save their grossly excessive pensions from reduction by CONTINUING to hoodwink the Taxpayers.


      • Posted by Anonymous on October 9, 2014 at 3:45 pm

        Private sector 401k retirees have their own unique set of issues ie tax obligation on untaxed retirement savings, possibility of a higher tax bracket during retirement, purchasing annuities on the open market as an individual, unethical financial advisors, how to tax defer during retirement, overspending, not taking RDM on time, greedy/needy relatives and a whole lot more.


  1. Posted by Anonymous on October 9, 2014 at 9:24 am

    The ability for some NJ defined benefit employees to move from PERS to one of the providers of the NJ. Alternate Benefits Program has been in place for decades. The employee transfers vested employer/employee contributions trustee to trustee, the transfer is irrevocable. The employer funds go into a 401a account, the employee funds a 403b. The employees PERS monies are transferred from the State held pension trust fund, at retirement in accordance with the summary plan the employee can take a lump sum like most 401k employees, period certain, lifetime annuity, leave money until 70 1/2 for ITS required minimum distributions plus other options. Since this is state sponsored DC plan participants can transfer 401a, 403b or any combination of plan funds back to the State defined benefit plan to receive a monthly retirement benefit, this is a 2012 IRS ruling for work environments that offer both. It appears the State would need to purchase a group annuity from an insurance company to transfer existing retirees monthly payments and purchase a group health insurance plan to handle retiree health benefits. It seems many pension pundits and commentator s took the chicken little sky is falling story to heart. The solution is already at the State treasury.


    • Posted by Anonymous on October 11, 2014 at 9:28 am

      I blame the unions for not fully educating their members about NJ pension programs and the supplemental programs available. N.J.A.C. 17:7 was readopted April 8, 2014 this statute covers the NJ Alternate Benefits Program, higher ed. N.J.A.C 17:8 was transported 5/16/14, this covers supplemental accounts 403b which all NJ pension member can choose to participate or not . All documents are available on the NJ Division of Pensions and Benefits website under boards and commissions. This information with yearly revisions has been available for years. 13% of based salary is the required salary total for all pension members, 5% employees, 8% employers. The NJABP was shutdown for lifetime income full payout while this program was being reviewed for readoption, no official thought it was important to tell higher education retirees so they suffered through immediate annuities until the description process was finalized. NJABP accumulations are for the “exclusive benefit of participants and their beneficiaries”. The State or an employer can’t borrow money and you can retire at any age. The description validated the protection of NJABP which is a defined contribution program. TL your response is……?


    • Posted by Tough Love on October 11, 2014 at 9:54 am

      Purchasing either the promised Public Sector Health insurance or the pensions from an “insurance” company would cost about DOUBLE what the State is now (falsely) saying these promises will cost Taxpayers …… because while the state can BS the Taxpayers, they can’t fool the insurance company actuaries who will (to take on the risk associated such policies) price them CONSERVATIVELY (meaning “expensive”) not LIBERALLY (meaning cheap) as the state assumes now.

      Will NEVER happen.


      • Posted by Anonymous on October 11, 2014 at 8:57 pm

        It’s a pooled group annuity once vested the accumulations belong to the employer and their beneficiaries. I doubt if the cost would be double since the fees would be spread amongst the pool. The Commission would be wise to investigate expanding the existing dc programs. The main problem is those already retired, maybe a pooled deferred annuity program might work if phased in. There are workable solutions through insurance companies.


        • Posted by Tough Love on October 11, 2014 at 11:12 pm

          Insurance companies price annuities (in the current very low interest environment) with investment return assumptions below 4% (vs the 7.9% that NJ’s Plans use) and with recent-experience annuity-mortality-tables with projections for future-year mortality improvement (vs out-of-date tables with shorter life expectancies that NJ’s Plans use).

          In the real world, there is no free lunch, Free lunch (for the Public Sector workers … to the detriment of Taxpayers) only exists in the make-believe world of gov’t where the Taxpayers are the suckers left with the bill.


          • Posted by Anonymous on October 12, 2014 at 11:06 am

            The pooled group policy should have much lower administrative fees and cost for stakeholders.

          • Posted by Tough Love on October 12, 2014 at 12:14 pm

            Yes Anon, the Admin fees would likely be lower, but admin fees are literally miniscule compared to the INCREASE in cost of the annuity-writer pricing the product with conservative interest and mortality assumptions (e.g., investment return assumptions of about 4% vs 7.9%) …. because, unlike in Public Sector Plans where they have the captive Taxpayers as a backstop for asset shortfalls, they don’t. It’s THEIR money they are putting “at risk” and they can’t go back and ask for more money if developing experience is lousy.

        • Posted by Anonymous on October 13, 2014 at 1:09 am



    • Posted by Tough Love on October 11, 2014 at 12:24 pm

      Quoting …”The employee transfers vested employer/employee contributions trustee to trustee”.

      Since the State Plans are only about 55% funded under the “official” most-optimistic of assumptions … and MUCH worse under more realistic assumptions, for every employee who is allowed to, and exorcizes this option, moving 100% of the PV of THAT employee’s FULL promised pension, WORSENS the funding ratio for those that do NOT elect to do so. It’s a VERY bad idea for the Plan as a whole.

      That is exactly why IRS Regulations restrict the election of Lump Sum payout options under poorly fund Plans. Under the rules that apply to Private Sector Plans, if the funding ratio is under 60% NO lump sum payouts are allowed. If the funding ratio is greater than 60% but less than 80%, only HALF of the pension’s lump sum value can be paid out as a lump sum.

      And importantly, since Private Sector Plans discount their Plan liabilities using an interest rate of about 4.5% (not the 7.9% that Public Sector Plan in NJ use) the 55% “official” State funding ratio would be closer to 40% if calculated using the SAME assumptions that Private Sector Plans are REQUIRED to USE. In fact, it is so VERY poorly funded, that if the State Plans were a Private Sector Plan, current IRS regulations would bar the Plans from accruing any further benefits.


      • Posted by Anonymous on October 11, 2014 at 9:14 pm

        You move the employees’ full accumulation, the Division of Investments would have to do a better job of generating revenue to support retirees left in the old system. The DON can devise a workable transfer scheme. The present value of the employees accumulation in a fixed annuity if it’s left to grow with interest and additions would translate to a far better payout than the payout from the present evidence plans, especially in a 401a. I don’t get paid to outshine the civil servants so I will leave it to them to find solutions. I don’t know that the IRS can’t sanction a underfunded public pension. Discount are available to public pension funds from insurers, this is a lot of new clients, the State can’t touch the money.


        • Posted by Anonymous on October 11, 2014 at 9:17 pm



        • Posted by Tough Love on October 11, 2014 at 11:19 pm

          Quoting …”You move the employees’ full accumulation, the Division of Investments would have to do a better job of generating revenue to support retirees left in the old system.”

          With a TRUE NJ State funding ratio near 40% (NOT the “official” 55%) it is patently absurd to think a 100%-40%=60% asset shortfall could be made up via .. “the Division of Investments would have to do a better job of generating revenue to support retirees left in the old system.”

          If employees were actually allowed to take 100% of THEIR accrued pensions (even though only real cash is there on average to pay them only 40 cents on the dollar), there would be a run-on-the-bank scenario with everyone looking to cash out before all Plan assets were GONE.


          • Posted by Anonymous on October 12, 2014 at 11:18 am

            I doubt seriously the State and insurers would allow a “run”. There would have to be a scheme to address retirees receiving payouts from the old defined benefit pension schemes. Transferring pension obligations is not new there are examples in the public and private sector. Many companies switched from defined benefits to 401k for employees, what happened to the retirees from the defined benefit plans? US is not just one of the riches countries it is also one of the smartest, the sky will not fall as a result of the pension matters.

          • Posted by Tough Love on October 12, 2014 at 12:55 pm

            Anon, let’s make up an example…

            1) assume the Plan has 4 participants, 3 active and 1 retired.
            (2) assume the Plan has assets of $1,100 and liabilities of $2,000 giving a funding ratio of 1100/2000 = 55% (just about NJ’s “official” funding ratio).
            (3) suppose the “accrued pension” (i.e., HIS share of the $2,200 liability) of Participant “A” is $400 and he elects to switch to the DC Plan as you described, with a full $400 of Plan assets moving to the DC Plan (even though a proportionate 55% “share” of the total Plan assets of $1,100 is only $400×0.55 = $220). Look what happens to the Plan’s funding ratio…….

            Assets remaining = $1,100-$400= $700, and remaining liabilities = $2,000-400 = $1,800, giving a new Plan funding ratio of $700/$1,800= 38.9%. Now seeing that, what should the remaining participants do ?

            Run for the doors, switching to the DC Plan ASAP. All but the first guys out lose badly, and it’s VERY unlikely that Taxpayers will be riding to the rescue.
            Private Sector Buyouts and/or a switch to Insurance company annuities involve the same “mathematically” issues, but most single-employer Pans have funding ratios of 80% or better, and with those funding rations calculated using US Gov’t specified interest return assumptions that are close to 4%. If Public Sector Plans were calculated in the SAME way, most Public Sector Plans (including NJ) would have funding ratios below 50%. It it BECAUSE Private Sector Plans are typically well-funded that the cost to the company to shift their Plan to a DC form or sell their commitments to Participants via the purchase of annuities is generally not a great financial burden …. unlike it now is for virtually ALL Public Sector plans.

          • Posted by Anonymous on October 12, 2014 at 3:48 pm

            It’s a insurance policy the payout product is insurance, not investment based payout. What’s up TL you getting pleasure from the problem and a solution would end your emotional attachment to the total collapse you are anxiously anticipating?

          • Posted by Tough Love on October 12, 2014 at 9:47 pm

            Responding to the last Anon commenting … The insurance company product being discussed is an annuity, not a life insurance policy. Arguably, annuities are also “insurance” policies …. that is, insurance against the risk of living too long (as opposed to dying too soon).

            What you don’t seem to understand, is that the COST to the purchaser is VERY highly dependent on the investment earnings rate that the annuity issuer assumes it will earn on the up-front lump sum turned over to it to buy the annuity. In fact, it is the MOST IMPORTANT assumption going into the pricing of annuity products.

            I get no pleasure from problems that cause to much harm. As a taxpayer and one who believes in fairness and a rather level playing field, I strongly protest the Public Sector Union/Politician collusion that has resulted in Public Sector pensions & benefits MUCH MUCH greater than what is necessary to attract and retain a qualified workforce, is grossly excessive (by comparison to their Private Sector counterparts), is unfair to taxpayers whose allocated share of total Plan costs is typically 80%-90%, and is financially unsustainable w/o massive tax increases.

            I comment to educate readers and clearly to counter the material omissions, distortions of fact, and outright lies from those who fight against Public Sector pension/benefit reform (almost entirely Public Sector workers/retirees and their families).

            And to be clear, real reform must be VERY material (barbecue the problem is HUGE, right now) and any solution that will actually work MUST include material (50+%) reductions in the FUTURE Service pension accrual rate, and VERY material reductions in retiree healthcare subsidies (with such subsidies grading to ZERO in no more than 5 years).

          • Posted by Anonymous on October 13, 2014 at 1:26 am

            It is a group retirement income annuity for lifetime income a long-term insurance policy. The cost is spread amongst a group in a pooled group insurance policy that provides a lifetime monthly income. You do get pleasure, reread your comments. We are all payers of taxes. I accessed state retirees pensions on data I saw employee payouts from 10-40+ years not excessive nor impressive. There is a viable solution, I doubt it will come from you.

          • Posted by Tough Love on October 13, 2014 at 1:44 am

            Anon, Not sure of the point you are trying to make …

            My point is that because a PRIVATE Sector company is selling (and pricing) the product (the group annuity) it will reflect their best estimate of the payouts (using interest and mortality assumptions MUCH MUCH more conservative than those used in current Public Sector pension Plan valuations), plus all direct and indirect administrative costs, plus a profit margin, plus a “risk charge” to cover the possibility that experience worse than they assumed.

            The upshot is that the cost of purchasing such annuities will be MUCH MUCH more costly than anything NJ has ever shown reflecting Public Sector pension Plan costs….. and likely consistent with paying FULL ARCs calculated with a 4% investment rate assumption.

            When the Taxpayer (i.e. the oppressed sucker in the equation) is removed as a backstop for investment shortfalls (or longer than expected life expectancy) the costs go up …. WAY up.

  2. Posted by Anonymous on October 9, 2014 at 10:01 am

    not ITS nor IRA


    • Posted by Anonymous on October 13, 2014 at 1:11 pm

      Not true the State of NJ has 401a and 403b group and supplemental policies for dc participants with at least 6 insurance providers for decades, discounts are available because of long-term contracts. Insurance annuities are the answer.


      • Posted by Tough Love on October 13, 2014 at 2:02 pm

        Assuming this comment was a response to my above comment timestamped October 13, 2014 at 1:44 am, it is completely off-point.

        What you have been calling for is (NOT that DC Plans now exist alongside the primary DB Plans …. I understand that) but a SHIFT from the DB Plans TO replacement DC and in doing so giving each worker who do so, to move 100% of THEIR accrued pension.

        As I’ve try to explain in several ways already, when the Plan (in total for all workers combined) has roughly HALF of the assets necessary to fund already accrued pensions, it simply CANNOT let switching employees take 100%. Allowing such switches would most certainly encourage all workers with even a modicum of common sense to switch IMMEDIATELY, causing the run-on-the-bank scenario I previously mentioned.

        Give it some thought … perhaps it will sink in.


        • Posted by Anonymous on October 13, 2014 at 5:18 pm

          When GM moved its employees to Prudential all you speak of was addressed, sorry you don’t get it, the State of NJ can successfully address it’s short-term and long-range pensions issues and they will with a combination of programs, sorry TL the sky won’t fall. You continue with your fatalistic rants, there are workable public sector solutions to these matters.


          • Posted by Tough Love on October 13, 2014 at 6:39 pm

            While I don’t know the specifics of the GM Bankruptcy with respect to the funding ratio at the time it was turned over to Prudential, I can assure you that Prudential’s pricing to take on that risk (while likely not much greater than what GM’s actuaries calculated as It’s full annual ARC) is MUCH MUCH greater than what any NJ PUBLIC Sector Plan would have for it’s ARC, calculated with the absurdly high 7.9% interest assumption for BOTH the investment return and the PV of it’s liabilities. PUBLIC Sector Plans simply do not have sufficient assets to make such a switch-over including maintenance of 100% of the promised pensions.

            Either you don’t understand the math and underlying pension & insurance concepts … or you’re a charlatan, playing dumb.

          • Posted by Anonymous on October 13, 2014 at 7:52 pm

            The GM/Prudential deal is available online, you are playing intelligent with your repeating of your “math based” review, I believe my comments are closer to the direction the new reforms will take, not a total collapse with retirees eating Alpo leaving in boxes.

          • Posted by Tough Love on October 13, 2014 at 8:25 pm

            I never said that there would be … “a total collapse with retirees eating Alpo leaving in boxes.”

            My comment were countering your assertion that somehow Public Sector pension Plan participants (now in Plans with TRUE funded ratios of roughly 50%) could somehow switch to DC plans taking full assets equal to their full accrued pensions (or via a PRIVATE sector group annuity purchased by the current State Plans would somehow enable covering full promised pensions).

            Well, unless unless you’ve got a money tree (and taxpayers aren’t going to stand for that) to throw a LOT more into the pot than the assets now in NJ’s Plans, neither can or will happen.

          • Posted by Anonymous on October 13, 2014 at 10:50 pm

            If you use a portion or all of your accumulation to purchase a policy you don’t give the insurer the full cost of the lifetime income promised you give them the cost of the policy. You know this and continue your dance and chant around solutions.

          • Posted by Tough Love on October 13, 2014 at 11:56 pm

            I’m going to assume that you are not a charlatan and that you just do not understand, so I’ll try one last time by way of example.

            The following is the present value of paying $1 at the beginning of each year for life to a person age 55 using the following mortality table … RP-2000 projected to 2007 50%M/F – Non-Annuitant:

            (a) using the “official” NJ rate of 7.9% ….. $12.96
            (b) using a 4% rate (which is what typical annuity-writers use today) ….. $17.72

            Note that these annuity factors contemplate a LEVEL annual payment of $1, which is consistent with the current NJ COLA suspension being permanent.

            Since the NJ State Plans have just about a 55% funded ratio (calculated using the 7.9% rate), ON AVERAGE it has only $12.96 x 0.55 = $7.13 of real “assets” to buy an annuity of $1 annually for life from a willing annuity writer.

            Next…… what should we expect the annuity writer the CHARGE in cash upfront to take on the obligation to pay that $1 per year for life in lieu of payments being made directly from the NJ Plan?

            Well, BEFORE making provision for expenses, profit, and risk charges, and using the 4% assumed investment return in it’s calculations, it would be charging $17.72. After adding in expenses, profit, and risk charges, the gross charge would likely be north of $20.

            So where is the State going to get that $20+ UP FRONT (in cash) to buy that annuity, when (on average) it only has $7.13 on hand ?

            Like I’ve tried to tell you earlier, the solution you see as an option, is not possible, not even REMOTELY possible.

            But don’t feel too bad as you got company in high places. Senator Orrin Hatch from Utah is pushing a proposal quite similar, and equally ridiculous and unworkable.

          • Posted by Tough Love on October 14, 2014 at 12:10 am

            Ooophs …. I read one of the above annuity factors from “spreadsheet row #55” instead of the “row corresponding to age 55”.

            The $12.96 above should be $11.95.

            So it’s even worse, as on average, the State only has $11.95 x 0.55 = $6.57 (NOT the $7.12 I calculated in my above comment) in available assets to purchase a life annuity whose cost will likely exceed $20.

          • Posted by Tough Love on October 14, 2014 at 11:24 am

            Anon, Because you are so stubborn, and likely will STILL not believe me, I decided to look (via internet annuity sellers) for the BEST rate I could find consistent with my above example. Since the online annuity calculators provide sex-specific quotes, and I used a “Unisex” mortality table in my example (assuming 50% Male & 50% female mortality) I simply averaged the male and female quotes obtained from the online annuity calculator.

            The result ……….. the lowest I could find would charge $18.06 to sell an immediate life annuity beginning at age 55. That gross annuity charge of $18.06 likely implies that the annuity-writer priced that annuity with an investment return assumption closer to 5% (vs the 4% that I used in my example), but still FAR below the 7.9% assumption underlying the pension valuation in NJ’s pension Plans.

            Like I said earlier ……… when the oppressed Taxpayer is eliminated as the financial backstop for investment losses (as would be the case if Private Sector annuities were purchased), the COST of providing the promised pension goes WAY UP.

            Or, as the intelligent amongst us already knew ….. NJ’s Plans have been lying about the TRUE cost of Public pension promises forever. And UNDERSTATING that true cost (combined with political self-interest and Union/Politician collusion) has led to the grossly excessive pension promises in place today.

  3. Posted by truthnolie on October 9, 2014 at 1:21 pm

    From the link posted above –

    “there is no flaw in the basic design of New Jersey’s defined benefit pension plans, as long as these are managed well.” (KEY POINT!!! — MANAGED WELL)

    “New Jersey’s pension system is seriously underfunded primarily because the state has persistently failed to make required contributions,” – NOTHING MORE NEEDS TO BE SAID – THAT IS IT IN A NUTSHELL!!!!!!


    • Posted by Anonymous on October 9, 2014 at 3:34 pm

      So your work here is done, let the Force be with you.


    • Posted by Tough Love on October 9, 2014 at 3:45 pm

      Quoting ….”“there is no flaw in the basic design of New Jersey’s defined benefit pension plans, as long as these are managed well.” (KEY POINT!!! — MANAGED WELL) ”

      Truthnolie, we BOTH know that a DB Plan can indeed be “well managed” but designed with such excessive pension “formulas” and “provisions” that those benefits are unnecessary, unjust, and financially unsustainable.

      Example …. take a “Well Managed” plan and TRIPLE the benefits ….it would still be “Well Managed”, but few would disagree that the new level of promised benefits is necessary, just, and financially sustainable.

      The ONLY way your above quote would make sense, would be if the words “managed well” encompassed the Plan’s level of “generosity”, and under THAT definition, virtually ALL Public Sector pension Plans fail miserably, because they ALL grant grossly excessive and unnecessary benefit levels, are unfair to Taxpayers called upon to pay for 80-90% of these VERY costly promises, and are clearly unsustainable.



      • Posted by Anonymous on October 9, 2014 at 5:11 pm

        TL blames pensions for her taxes when she has skipped almost every payment. She needs to realize her money has gone elsewhere, yet she blames public employee pensions. Does she realize a whole lot of money has been paid into taxes, where has it gone? Not into pensions and benefits as she so vehemently states.


      • Posted by truthnolie on October 10, 2014 at 12:03 pm


        Notice you left out including or commenting on the second, more important part of what I posted, that the “pension system is seriously underfunded primarily because the state has persistently failed to make required contributions”.

        Of course that doesn’t play into your game of blaming and vilifying the public workers so you choose to avoid any mention of it… convenient.


        • Posted by skip3house on October 10, 2014 at 12:53 pm

          Just ‘promised’, not required


        • Posted by Tough Love on October 10, 2014 at 1:18 pm


          (1) You 2-nd point MAY be true, but is complicated. While NJ has indeed contributed MUCH less than the annual ARC, those calculated ARCs reflect funding levels that are tied to grossly excessive pension promises … so fully paying that ARC would in essence be accepting of those grossly excessive promises…. which I strongly advocate that we NOT do.

          What I don’t know is if the ACTUAL NJ employer (meaning Taxpayer) contributions would have met an ARC calculated based on Plan generosity that was NOT excessive. I’d bet that they would be if the pensions granted NJ’s Public Sector workers were EQUAL TO BUT NOT GREATER than the retirement benefits typically granted comparable Private Sector workers.

          (2) You complained that I didn’t answer your 2-nd point, but YOU didn’t (and apparently can’t) refute the point I made …. that a “well managed” DB Plan essentially means little if the underlying Plan generosity is grossly excessive …. which ALL NJ Plans are.


    • Posted by MJ on October 9, 2014 at 4:56 pm

      So then why hasn’t it been funded?? If the dopes in charge could find it why wouldn’t they


  4. Posted by skip3house on October 9, 2014 at 1:43 pm

    ‘promises better than nothing’, so promised too much for votes then nothing for actual funding. Over promised our funding ability for value of services rendered….in a nut shell


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