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.

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* 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.