Moving the Goalpost on New Jersey Pensions

When politicians get in a room with only their immediate enablers to bang out solutions to real problems without consulting any real experts they often come up with moronic ideas, designed to solve  through deception,  but this one by the New Jersey “Legislature’s leading expert on pension issues” might be the dumbest one ever.

According to an njspotlight story released today:

Senate President Stephen Sweeney (D-Gloucester) wants to overhaul the state’s pension funding formula to make annual state pension contributions lower and more “manageable” over the next decade while preserving benefits for retirees.

“Governor (Chris) Christie says the state can’t afford to get to 100 percent funding of the public employee pension system, and he used that argument to justify cutting pension contributions by $2.4 billion and to call for public employees to pay more,” Sweeney said in an interview with NJ Spotlight. “But he’s using the 100 percent funding target to inflate the size of the problem and make it look worse than it is for his own political purposes.”

“In the private sector, 85 percent funding is considered the ‘gold standard’ under ERISA,” Sweeney said, referring to the 1974 federal Employee Retirement Income Security Act that sets the guidelines for private pension systems. “That’s manageable. We can get to 85 percent funding, and at that level, we can restore the COLAs (cost-of-living adjustments) for retirees too.”

Union representatives are on board:

“Most private sector pension funds are not funded at 100 percent,” noted John Loos, the former Communications Workers of America leader who co-chairs the New Jersey Retired Public Employees group. “Eighty percent and up is the norm.”

Most private sector funds (excluding multiemployer plans which are a mess but including ‘one-participant’ DB plans which are thriving) ARE funded at 100 percent and, if not, have to be funded at 100% within seven years under PPA funding rules and the actuarial assumptions that define 100% are legislated (though MAP-21 and HATFA have watered those down).  Apply those private sector PPA factors to public plans and New Jersey’s 54% funded ratio drops to 30%.

The reason for the proposal:

Sweeney’s plan to change the pension funding formula would save billions of dollars in pension payments in state budgets over the next decade, while still cutting the state’s unfunded pension liability for teachers and state government workers and retirees sufficiently to guarantee the solvency of the pension system. That unfunded liability is now expected to top $60 billion by FY18, up from $54 billion before Christie’s pension cuts.

A pension system that has 85 percent of the funding it needs to cover all accrued pension obligations is clearly regarded as sufficiently stable to withstand losses from a major drop in the stock market and have time to recover while continuing to make payments.

A pension system with 30 percent of the funding it needs to cover all accrued pension obligations is clearly regarded as dead to anyone in the business of understanding, and not manipulating, numbers.

 

 

34 responses to this post.

  1. Posted by hondo on October 28, 2014 at 6:52 am

    I would like to see in reality how we are going to get to 85%? I guess Sweeney’s is a fortuneteller who can predict the future & recovery of a major market drop! Boy, if he is that good he should be hedge fund manager so he thinks.

    Reply

  2. Posted by RealRep on October 28, 2014 at 8:39 am

    Sweeney in punt formation.

    Reply

  3. Posted by Tough Love on October 28, 2014 at 9:48 am

    Looks like if Sweeney is the next Gov. he KNOWS he too won’t be able to properly fund NJ Plans … so he looking for HIS way to “skirt” (but not really “address”) the problem,

    NJ’s Plans a “dead” !

    Reply

  4. Posted by Anonymous on October 28, 2014 at 11:21 am

    chris is the best running back in the country when it comes to politics, he is evasive, slippery and dodgy. As fat as he is, when you try to tackle him its like holding on to a greased frozen turkey.

    Reply

  5. Posted by skip3house on October 28, 2014 at 12:59 pm

    Just will keep throwing ‘feel good’ comments until only money left in pension funds belongs to participants’ own contributions..

    Reply

    • Posted by Tough Love on October 28, 2014 at 6:36 pm

      I agree, at which point, the politicians with any brains will change sides … dumping the Unions in favor of the Taxpayers …. because they will know that if they even REMOTELY tried to raise taxes by the amount sufficient to keep the current pension promises in place once Plan assets run out and we’re on a pay-as-you-go basis, they would VERY QUICKLY be voted out of office.

      Reply

  6. Posted by MJ on October 28, 2014 at 1:00 pm

    Where will the funds come from to get to 85% funded plus restore COLAs to retirees? or did I miss something? So Sweeney is the genius who came up with this “solution” that is really no solution at all.

    Reply

    • Posted by Tough Love on October 28, 2014 at 6:40 pm

      Sweeney realizes that there is no workable financial “solution”, so he’s setting up a way for HIM to further kick-the-can-down-the-raod should HE be elected NJ’s next Governor.

      The Pension count-down clock is ticking………….

      Reply

  7. […] John Bury, an actuary that blogs at Bury Pensions, says the plan achieves savings through “manipulating numbers” and doesn’t address any of the […]

    Reply

  8. Posted by George on October 28, 2014 at 8:05 pm

    When will NJ government pensions pay out to pensioners more than NJ pays into the pensions?

    Reply

    • They’re doing that now. Estimating it’s about $9 billion being paid out with about $4.5 billion ($2 from employees, $2 from localities, and .5 from the state) coming in. The trust they have is being eaten away.

      Reply

      • Posted by Anonymous on October 29, 2014 at 10:39 am

        Without comment I am posting the latest annual reports available of the NJ Pensions:.

        Fiduciary net position increased by $4.0 billion as a result of this year’s operations from $77.9 billion to $81.9 billion.

        • Additions for the year are $18.7 billion, which are comprised of member and employer pension contributions of $10.4 billion and investment income of $8.3 billion.

        .Deductions for the year are $14.7 billion, which are comprised of benefit and refund payments of $14.6 billion and administrative expenses of $49.5 million.

        Reply

  9. Posted by Tough Love on October 28, 2014 at 8:09 pm

    How interesting that Sweeney has found a convenient source (actual source please?) to justify a goal LESS THAN 100% funding.

    Quoting from a Issue Brief from the American Academy of Actuaries …………..

    “Pension plans should have a strategy in place to attain or maintain a funded
    status of 100% or greater over a reasonable period of time.”

    Details can be found here:

    http://www.actuary.org/files/80_Percent_Funding_IB_071912.pdf

    Reply

  10. Posted by Eric on October 28, 2014 at 10:37 pm

    John:
    I have had a bunch of wine tonight, however, if what you said is true, the pension still has close to 20 years before it hits “Pay go” status,correct? I know that it is so very difficult to ascertain the true value of the corpus, especially with so much now placed into “alternatives”.
    Thanks,
    Eric

    Reply

    • 20 years would be a miracle. With outflow 2-1 over input and that outflow tripling over 13 years (from $3 billion in payouts in 2001 to $9 billion now) and all those tweaks not materially affecting anything (especially with COLAs coming back) while the $4.5 billion input is already straining budgets there is zero chance this scheme survives this decade. It’s already at the point where, after refunding employee contributions, there isn’t 50% of the money available to buy annuities for ONLY the current retirees.

      Reply

      • Posted by Tough Love on October 28, 2014 at 11:44 pm

        Quoting ….” With outflow 2-1 over input…”

        Seems like you are relating the $9 Billion outflow to the $4.5 Billion inflow.

        But it’s worse, because $2 Billion of the $4.5 Billion is from “active” employEE contributions and hence will need to be returned to the contributors. So we really have $9 Billion outflow to current retirees and only $2.5 Billion inflow from Local & State Taxpayers.

        Of course the outflows and inflows will likely NOT be constant in each year, but with about $30 Billion in Plan assets (excluding contributions that would need to be returned), $9 billion outflow, $2.5 Billion (unrestricted) inflow and say a 6% annual return on assets, the $30 Billion will run out in just over 5 years (via a quicky spreadsheet).

        Reply

        • Posted by Anonymous on October 29, 2014 at 10:45 am

          Don’t let facts get in the way.

          Fiduciary net position increased by $4.0 billion as a result of this year’s operations from $77.9 billion to $81.9 billion.

          • Additions for the year are $18.7 billion, which are comprised of member and employer pension contributions of $10.4 billion and investment income of $8.3 billion.

          • Deductions for the year are $14.7 billion, which are comprised of benefit and refund payments of $14.6 billion and administrative expenses of $49.5 million.

          Reply

          • Posted by Tough Love on October 29, 2014 at 12:08 pm

            The $81 Billion is mostly from contribution of those still active.

            Are you proposing that those contribution should be available to pay current retirees .. and run down to zero leaving nothing for them (even a refund of contributions if they terminate w/o vesting)?

          • Posted by Anonymous on October 29, 2014 at 1:19 pm

            Just posted the value of the system as reported because there are so many figures and dire predictions flying around.In spite of that the funds took IN more than they paid OUT.

  11. Posted by Eric on October 28, 2014 at 11:13 pm

    John:
    I guess this wine was really good stuff. I do remember reading your dour forecast, but like a timex watch or an energizer bunny, this thing may still go on for many years.
    Thanks again,
    Eric

    Reply

    • Posted by Anonymous on October 29, 2014 at 10:47 am

      This is why it keeps going and going Eric. These are not my numbers but from the latest financial report of the NJ Pension System.

      Fiduciary net position increased by $4.0 billion as a result of this year’s operations from $77.9 billion to $81.9 billion.

      • Additions for the year are $18.7 billion, which are comprised of member and employer pension contributions of $10.4 billion and investment income of $8.3 billion.

      • Deductions for the year are $14.7 billion, which are comprised of benefit and refund payments of $14.6 billion and administrative expenses of $49.5 million.

      Reply

  12. Posted by Anonymous on October 29, 2014 at 1:32 am

    millionaires tax will be reinstated when sweeney gets elected like it or not, everyone is going down together even the millionaires after all once pension fails where it the money going to come from for everything else needed

    Reply

    • Posted by Tough Love on October 29, 2014 at 2:08 am

      Once NJ’s Pension Plans run out of money, retiree payments can be reduced to what CURRENT (unrestricted) Tax collections can pay ….. i.e., not much.

      No justification (in NJ, the highest-taxed State in the nation) for increased taxes on ANYONE … and ESPECIALLY not so our insatiably greedy Public Sector workers can continue to get outsized pensions and benefits, ALWAYS multiples greater in value at retirement than what their Private Sector counterparts get from their employers.

      Anon, if you’re “pissed”, blame all the politicians who (in exchange for your Union’s campaign contributions and election support) promised you the world … but with no intention of ever finding the money to pay for it.

      Reply

      • Posted by Anonymous on October 29, 2014 at 12:06 pm

        What your pea brain is incapable of understanding is the “politicians” (and judges) get their pensions from the same system….therein lies the rub

        Reply

        • Posted by Tough Love on October 29, 2014 at 12:16 pm

          And what you seem to ignore is that the MATH and Reality ALWAYS governs in the end-game.

          There ARE limitations as to how much the taxpayers can be “screwed” just so your grossly excessive and unjust promises can continue.

          Reply

      • Posted by Anonymous on October 29, 2014 at 12:08 pm

        What your pea brain is incapable of understanding is the politicians and judges get their pensions from the same system – therein lies the rub.

        Reply

  13. Posted by Anonymous on October 29, 2014 at 2:50 am

    Millionaire Tax will come soon. Sorry about that. but pensions or no pensions its coming. Pension failure will not solve your problems

    Reply

  14. Posted by Javagold on October 29, 2014 at 9:35 am

    What would you expect from a High School dropout.

    Reply

  15. Posted by Javagold on October 29, 2014 at 9:44 am

    85%. …… 8%……. Work those numbers boys…..make them up as you go along…..make them do magic…..make them do whatever you want…..just know that reality is going to smack you upside your heads very soon !!!!

    On a long enough timeline , the survival rate of everyone drops to Zero.

    Tick , Tock

    Reply

  16. Posted by Anonymous on November 6, 2014 at 5:57 pm

    So, no one responded to the original post (repeated below). Is this post TRUE or not?

    This is why it keeps going and going Eric. These are not my numbers but from the latest financial report of the NJ Pension System.

    Fiduciary net position increased by $4.0 billion as a result of this year’s operations from $77.9 billion to $81.9 billion.

    • Additions for the year are $18.7 billion, which are comprised of member and employer pension contributions of $10.4 billion and investment income of $8.3 billion.

    • Deductions for the year are $14.7 billion, which are comprised of benefit and refund payments of $14.6 billion and administrative expenses of $49.5 million

    Reply

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