Real Number on New Jersey Pensions – 6/30/14 Update

The June 30, 2014 actuarial valuation reports are out.

You might be seeing numbers tossed at you regarding deficits in the state pension of $53 billion and funded ratios of 61%**.  They’re way off.  Based on actuarial reports for the three largest plans I put their real deficit at $158 billion and their real current funded ratio at 33%. Let’s take this in stages as we replace official figures with real-world ones for these three largest plans.

OFFICIAL NUMBERS @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………29.0…………29.9………25.1……………..84.0
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-24.7…………-19.2……….-9.5……………-53.4
Funded Ratio………..54.0%………60.9%…….72.5%………….61.1%

The funds did not really have $84 billion in assets at June 30, 2014. The ‘actuarial value’ in this case means a phony value which in the private sector is used to ‘smooth’ valuations but in the public sector is used to distort. Here are the figures when we use market value of assets:

OFFICIAL NUMBERS WITH ASSETS AT MARKET @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0………25.1……………..81.7
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-26.1…………-20.1……….-9.5……………-55.7
Funded Ratio………..51.4%………59.1%…….72.5%………….59.5%

Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 7.9% interest assumption in a plan that demands liquidity) understate the true benefit costs. Here are the figures using realistic liability valuations:

BURY NUMBERS WITH MARKET VALUE @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury Liabilities……….83.0…………74.0……….53.0…………..210.0
Deficit………………….-55.4…………-45.0………-27.9………….-128.3
Funded Ratio………..33.2%………39.2%…….47.4%………….38.9%

Next we turn to the COLA theft.  2010 liability numbers were adjusted for the plans to take into account the elimination of all future Cost-of-living adjustments that public employees were promised – in writing.  Were that reinstated the respective adjustments that artificially lowered liabilities will need to be reinstated to the tune of 20% (TPAF), 15% (PERS), and 19% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury/COLA Liab…….99.6…………85.1……….63.1…………..247.8
Deficit………………….-72.0…………-56.1………-38.0………….-166.1
Funded Ratio………..27.7%………34.1%…….39.8%………….33.0%

For the year ended June 30, 2014 there was about $10 billion paid out in benefits from the system. With early retirement incentives, the return of cost-of-living adjustments, longer life expectancies, and baby-boomer retirements this payout number should hit $12 billion in three years by which time the fund will be depleted (after returning the interest-adjusted contributions made by employees and that market correction hits for all those ‘alternative’ investments) unless, of course, New Jersey politicians step up and do the honorable thing. There’s a debate as to whether you can put a number on that happening.

.

.

.

* This is an update of pieces I did on April, 2009, February, 2010 , February, 2011, January, 2012, March, 2013, and March, 2014 with very minor changes in the text.

** Or not, so far there has been no coverage of these numbers based on a quick bing search.

27 responses to this post.

  1. Posted by Tough Love on April 24, 2015 at 12:01 pm

    Quoting …..

    “Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 7.9% interest assumption in a plan that demands liquidity) understate the true benefit costs. ”

    The use of the 7.9% interest rate for discounting Plan liabilities follows from (ONLY) the Govt-sponsored Pension Plan practice of using the investment return assumption (7.9% in NJ) to discount Plan liabilities. What this effectively does is “guarantee” a 7.9% return to the participants, because any financial shortfall is the responsibility of the Taxpayers, not Plan participants.

    How would YOU (as a NJ Taxpayer) like to invest in a financial instrument with a GUARANTEED 7.9% return ?

    In the real world in which YOU invest, sure, you CAN get a 7.9% return … but with great risk. Here’s one recent example, quoting from a Bloomberg news report titled “A Subprime Auto Loan Surprise”:
    —————————————————————————————————-
    “Investors desperately seeking yield in a world awash with meager and even negative returns last week encountered a rare opportunity in the world of fixed income. Skopos Financial, a 4-year-old auto financing company based in Irvine Texas, sold a $149 Million bond deal consisting of car loans made to borrowers considered so subprime you might call them sub-subprime.

    Details from the prospectus show a whopping 20% of the loans bundled into the bond deal were made to borrowers with a credit score ranging from 351 to 500 — the bottom 6% of U.S. borrowers, according to FICA. More than 14 percent of the loans in the Skopos deal were made to borrowers with no score at all.

    What sort of return might an investor expect in exchange for purchasing the Skopos deal ? Those who bought the riskiest $9.1 million slice of the unrated securitization nabbed a yield of around 7.8%.
    ———————————————————————————————————-
    Yup, THIS is the level of RISK being foisted upon NJ’s Taxpayers, necessitated by the granting of such grossly excessive pension benefits ….. the ROOT CAUSE of the problem.

    Reply

    • Posted by Anonymous on April 24, 2015 at 12:41 pm

      you are big talker but you have done to implement your ideas. all talk no action, just more blah blah blah. sorry but its true. hold on to your millions cause it wont be long til the state comes for them. If not the state the feds. Argentina isnt far off. Keep your head in the sand

      Reply

      • Posted by Tough Love on April 24, 2015 at 12:55 pm

        As I’ve said before … don’t focus on me, focus on SOLUTIONS to the rapidly approaching NJ pension failure ……. and there a no solutions that do not include VERY major reductions in the pension benefit level promised all CURRENT (State AND Local) NJ workers.

        Reply

  2. Posted by John on April 24, 2015 at 1:04 pm

    Good work! Can you break out PERS Stae from Local? Very differnt ratios and combining them does not adequately reflect the real situation.

    Reply

    • I can since they break it out in the reports but it has no practical relevancy except for when calculating contribution requirements, which are ridiculously understated even before they are ignored. Here are the official funded percentages from the reports going back to 2005:
      https://burypensions.files.wordpress.com/2015/04/njpensions-funding.pdf

      That the local part is better funded than the state because their contributions have been a little bit higher doesn’t matter since when benefits are slashed (ie. COLAs) it us across-the-board. It is very unlikely that when they start reducing your monthly pension check that they will look back to see if you were in the state or local part of PERS.

      Reply

      • Posted by Tough Love on April 24, 2015 at 1:45 pm

        The “brotherhood” police claim to share will certainly be tested as I expect the LOCAL PFRS to insist that when pension cuts become necessary, LOCAL PFRS cuts should be lower than STATE PFRS cuts due to the higher LOCAL PFRS funding level.

        Reply

        • Posted by BH on April 24, 2015 at 3:46 pm

          As it rightfully should. Local PFRS increased from 8.5% to 10%…..with municipal match.
          State PERS is even lower. They were paying like 5% with no match.

          This is why the Local plans are sustainable. Christie will cut the State police, judges and police and fire out of any cuts to pensions. It simply won’t happen. He will continue to go after the state plans. That’s where the meat is. That’s where the burden is on the state. Not the local plans. The NJEA realized this after it was too late. That’s what happens when you make backdoor deals. The rest of the players call you a scab and you’re left on an island all alone. Now they want to stop talks…. Lol. Too late. So sorry!!!

          When the actuaries release 2015 numbers in July you will see the local plans funded well into the 80’s% while the state plans will still be failing. This is why the entire system is in trouble.

          Go after the ones who never paid, who still don’t pay!! State plans will fail. Local plans will not only flourish, they will be handed over to the unions to manage and you’ll see the funds grow. COLA reinstated, pension % decreased on members back to 8.5% and all of chapter 78 rescinded and the monies put back into their pockets (employees).

          later……..

          Reply

          • Posted by Tough Love on April 24, 2015 at 6:06 pm

            Ah, there we go ….. throwing you “brothers”, under the bus .

            Quoting …. “This is why the Local plans are sustainable. ”

            Baloney, the last funding ratios shows NJ’s LOCAL Plans in the mid-60’s, treible by any realistic standard. “Sustainable” my ars !
            ——————————————————————————-

            Quoting …”Go after the ones who never paid, who still don’t pay!! ”

            No, go after (via very material pensions reductions for ll CURRENT workers) the grossly over-promised pension BENEFIT level BOUGHT from out Elected Officials with Public Sector Union campaign contributions and election support.

            ———————————————————————————

            Quoting …”COLA reinstated, pension % decreased on members back to 8.5% and all of chapter 78 rescinded and the monies put back into their pockets (employees).”

            WOW ….. you really ARE delusional.

  3. Posted by Tough Love on April 24, 2015 at 1:55 pm

    Lots of articles out today with the release of the pension #s….

    Not only has the NJEA cut-off pension reform discussions, but Sweeney has ramped-up his pandering to the Public Sector Unions (always keeping his base intact for his bid for the Governorship). Sweeney refuses to even discuss reducing the “platinum+” active & retiree healthcare Plans, with the saving being used to shore up the underfunded pensions.
    ——————————

    As expected, the Public Sector Unions/workers want to give up nothing …. and the Democratic Legislators that they have BOUGHT with campaign contributions and election support are both too scared to challenge the greedy Unions, and to wanting of that campaign-money-flow to continue to act in the best interest of ALL of NJ’s Taxpayers, NOT just the interest of the Public Sector workers.

    NJ is in for a world of hurt …………… and the worker/retirees will certainly be a major recipient of that hurt when all of this shakes out over the next few years.

    Reply

  4. Posted by BH on April 24, 2015 at 3:55 pm

    NJ will be just fine!! As soon as Christie cuts the state from the local plans……
    Anyone currently vested in the pension system will continue to receive a pension or will receive a pension. They may see a slight reduction to their healthcare plans. With the savings going to the towns to help the tax burden…. Just like ch.78 did. But that’s all that will really happen to the local plans.
    Municipal negotiations will be a nightmare with flat increases and maybe some trivial concessions. But mark my word….. NOTHING SIGNIFICANT WILL HAPPEN TO THE LOCAL PLANS… Specifically the safety pensions!!!!
    The state will go back to the democrats…. Public employees will make it through bruised but unscathed.
    Hilary will sit on the throne and Christie will be employed by some big law firm simply for his name!!!

    Meanwhile, the private sector is gonna pay back our share. All those years of unfunded pensions that we all reaped the benefits of will have to go back into the plans through tax increases. Watch and see…

    Later…..

    Reply

    • Posted by Tough Love on April 24, 2015 at 6:13 pm

      Hey BH,

      Yesterday, you responded to my statement … “Public Sector workers are NOT “special” and deserving of a better deal on the Taxpayers’ dime.”

      With …. “Yes they are!”

      To which I responded as pasted below, (as your always acting with self-interest to protect NJ police pensions). I’d love to hear you weasel out of this very clear collusion between your Unions and our Elected Officials who grant these grossly excessive pensions & benefits:
      ———————————————————————————————-
      OK, let’s pursue that ….

      How much does that “specialness” translate into greater pensions and better benefits ?

      Most Taxpayers (myself included) would not object to a somewhat greater pensions for police …… say being able to collect a full/unreduced pension at age 60 instead of 65. THAT, is mathematically equivalent to a 1/3 increase in value of their pension……. a multiplier of 1.33.

      Let also be generous and say that their pension formulas should be a bit richer, say 25% ……. a multiple of 1.25.

      Those multipliers are not additive, but multiplicative, making a pension so calculated 1.33 x 1.25 = 1.66 or 66% (i.e. 2/3) GREATER than that of a similarly situated (in pay, years of service, and wages) Private Sector taxpayer.

      Rich enough for you ? Most (including myself) would think so.

      But it evidently is FAR from sufficient for NJ’s Police or the Elected Officials BOUGHT with their Union’s campaign contributions. You see, NJ police pensions (assuming the COLA is reinstated as most expect) are easily FOUR times greater in value at retirement ….. yes, not 66% greater, but 300% “greater” than those of comparably situated Private Sector Taxpayers.

      And evidently our Elected Officials felt that even THAT doesn’t sufficiently compensate for their “specialness”, granting (what at the Local level is) FREE retiree healthcare (which almost nobody in the Private Sector gets any longer) which for family coverage, costs Taxpayers an ADDITIONAL $30K annually.

      At what point is their “specialness” costing Taxpayers TOO MUCH ?

      Reply

  5. […] between $35 and $40 billion – GASB would put that underfunding at $83 billion though $166 billion is the honest […]

    Reply

  6. […] another $200 million to put into a pension system that that has an accrued deficit of $166 billion (using realistic assumptions).  But it gets […]

    Reply

  7. Posted by Anonymous on May 23, 2015 at 7:29 pm

    TL and devout followers; individuals presenting a right wing conservative perspective based on half-truths and lies.

    TL continual posts repetitive misinformation citing sources with extreme ideology. Yet sumarial dismisses other posts with conflicting opinions and sources.

    Specifically, purposely misstated the tax status of public pensions in the following post; https://burypensions.wordpress.com/2015/05/22/christie-curses-out-nj-media/#comments When called to task tried to double talk their way out of it. Standard operating procedure for most of their commentary.

    Fair and equal for all is the mantra. Fair enough, but not when I suggest Federal workers and members of our beloved Armed Forces be part of the bigger conversation. The response, they’re different. But why, because they risk their lives like first responders at home. Their DBP are paid with Federal tax dollars as opposed to State or Local. Everyone knew the job risks when they accepted employment. But they also knew what their salary, pension, and benefits were supposed to be.

    To blame and demonize public workers for the current situation is unfair and untrue. Do politicians make “deals” with unions that don’t always have the taxpayers best interest? I think everyone knows the answer to that is yes. But politicians are always making “deals” it’s what they do. Just ask the various segment market corporations; defense spending (lucrative contracts), farming (subsidies) and the list goes on and on.

    Your bully tactics and demeaning attitude only motivate me more to push back your parties ridiculous vision for NJ and America. Yes I’m sure John knows all of our IP address, so you and your business name can be exposed as well.

    The purpose of continually posting this comment is to allow the counterpoint perspective to be heard. I will no longer personally engage your comments tit for tat.

    Reply

  8. […] The truth is that $1.6 billion represents less than two months of payments out of the system to retirees or about two years of payments to investment advisers.  The system will not be funded if this payment is made but rather have a real deficit in the ballpark of $164 billion instead of $166 billion. […]

    Reply

  9. […] $166 billion is not available to fully fund the defined benefit system to date, […]

    Reply

  10. […] Again with the $40 billion unfunded number – try $166 billion. […]

    Reply

  11. […] in real life that debt is far above $300 billion as of July 1, 2014.  The pension debt is in the $166 billion range and though the Aon Hewitt OPEB valuation has some useful information on demographics and plan […]

    Reply

  12. […] reports as of 6/30/09 unfunded liabilities were $46 billion with a funded ratio of 66% and as of 6/30/14 they were $53 billion and 61% respectively though the latter numbers ignore the new GASB rules on […]

    Reply

  13. […] acknowledgement of the real unfunded number […]

    Reply

  14. […] The actual payouts from the pension system are around $10 billion annually. […]

    Reply

  15. […] real pension shortfall ($166 billion as of 6/30/14 plus whatever was lost in the last few […]

    Reply

  16. […] current deficit in pension funding alone is honestly at about $166 billion.  Only someone ignorant of that fact can assert that the middle class, however that may be […]

    Reply

  17. […] The real number update blog will come after the New Jersey Supreme Court rules on whether retirees get COLAs again as it may […]

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: