A Most Dangerous Delusion

Tomorrow we may know whether New Jersey has to come up with another $1.6 billion to put into the state’s retirement system for this budget year and the Associated Press (AP) just released a story that will likely be picked up nationally summarizing the situation.

I would not call it sloppy reporting since I see this mindset everywhere and it has morphed into perceived wisdom but it does point up the difficulty of coping with the public pension crisis in this country when so many of the main players (politicians, participants, media, unions, and the public) are ignorant of the facts even as they pretend to lay them out:

One of the signature achievements of Gov. Chris Christie’s first term in office was working out a plan for pensions. In 2011, the state agreed to pay enough over seven years of escalating contributions to make up for past funding deficiencies.

This is in line with a general feeling that if New Jersey is forced to make that $1.6 billion deposit all will be right with the world.  The truth is:

  • $1.6 billion is less than two  months of payouts currently going out of the plans.
  • The 2011 law set a schedule (in 1/7th intervals) by which the state would be deliberately INCREASING the underfunding by the portion of the Annual Required Contributions (ARC) that is NOT deposited.
  • The ARC amounts themselves are not to be believed.  Funding methods and assumptions that develop these mini-payment ‘requirements’ are actuarially dishonest, especially in an underfunded plan, and would lead to bankruptcy eventually even if the ARC were religiously deposited.

People want to believe that there are easy solutions like:

And so that is what you hear while the real solutions:

  • Start putting in $15 billion a year, or
  • Cut benefit payouts for everybody by 80%, then
  • Allow only Defined Contribution plans where politicians are involved

are too inconvenient to get an airing.

 

 

 

31 responses to this post.

  1. Posted by Tough Love on May 5, 2015 at 3:28 pm

    John, But what a forced $1.6 Billion payment WILL do (because, as you stated, the masses are ignorant of the depths of the problem, and what is “necessary” to address it) is DELAY changes for a few more years, moving more excessive/unaffordable accruals from the FUTURE Service column to the PAST Service column where most (and especially the older, longer-service workers who control the Unions) believe there is far less chance of a reduction.

    Hence, more for THEM, and to hell with the younger shorter-service workers, as well as NJ’s Private Sector taxpayers.

    Reply

  2. Posted by Anonymous on May 5, 2015 at 10:37 pm

    TL, do you realize all the talk in the world wont help. Someone needs to do something of substance, maybe even you?

    Reply

    • Posted by Tough Love on May 5, 2015 at 11:12 pm

      Helping spread the truth (as opposed to what comes from the Unions/workers/retirees) is the roll I’m suited for, and I’m doing my best.

      Are you volunteering ?

      Reply

      • Posted by Anonymous on May 6, 2015 at 2:05 am

        That is rich! What a pathetic excuse for not doing a bloody thing! Have another drink to celebrate your role!

        Reply

      • Posted by truthnolie on May 6, 2015 at 4:22 am

        “is the roll I’m suited for”

        Hahaha….the great corrector of proper spelling & grammar once again shows her ineptitude….

        The word you’re looking for is “role” not “roll” ……unless you are posting a comment about your Fat Fuhrer, in which case “roll” (or a reference to any fattening food groups and/or his many body fat rolls) would be not only sarcastically funny (which you are not) but indicative of wit (of which you have none).

        Reply

        • Posted by Tough Love on May 6, 2015 at 10:00 am

          Blog comments aren’t generally thought of a bastion of impeccable spelling and grammar, but a way to quickly communicate your thoughts……

          .I’m sure YOUR contributions to the discussion …… most recently limited correcting my spelling/grammar (when not spewing your standard worker/retiree disdain for even the most minor of pension reforms) adds considerably to the discussion.

          Reply

          • Posted by S Moderation Douglas on May 6, 2015 at 11:53 am

            But it is funny. And sometimes ironic when you criticize someone else’s sentence structure………by saying you have “know” idea what they mean. You obviously possess some type of spell checker or auto correct, because it is unlikely, even in New Jersey, that public workers have “earthenware subsidies”. So how does “CURRNET worklers”, and similar gems, slip through?

            Seriously, everyone makes an occasional “micstake”, even the Moderate One”, but it’s easy to tell when your panties are in a twist and you’re firing on all three and a half cylinders, because the malapropisms and solecisms are exceeded only by the blatant misspellings.

            NOT TO MENTION THE CAPS LOCK ADDICTION!!!

            Well, that’s my opinion, anyway.

          • Posted by Tough Love on May 6, 2015 at 12:21 pm

            Well S Moderation Douglas, while I should also ignore poor spelling/grammar, the comment to which I was responding (that you apparently are referring to) was from another of the many “Anonymous” claiming that I don’t know what I’m talking about and responded to me with sentence quoted below …..

            Sorry, but someone who writes like that shouldn’t be commenting AT ALL ……. (way beyond spelling/grammar issues)
            ———————————————————————–

            “I said calculate the numbers that would mean under the assumption those items I mentioned retrospectively occurred.”

          • Posted by Anonymous on May 6, 2015 at 5:10 pm

            blog comments are useless for getting the word out, what a joke you are

          • Posted by Tough Love on May 6, 2015 at 8:21 pm

            And what a worried commentator you are to be so concerned with my comments.

      • Posted by S Moderation Douglas on May 6, 2015 at 12:18 pm

        I realize you did not request my assistance, but I am a giver. Generous and altruistic.

        You are not suited for this role. Your extremism and rudeness are counterproductive. Your faulty logic and misinformation (and grossly inflated ego) destroy any credibility you might have had.

        Particularly, your Fireman Fallacy, though the math may be immaculate, has a logical flaw large enough to drive a fleet of fire engines through.

        AND OVERUSE OF CAPS LOCK, of course.

        That’s my moderate opinion.

        Reply

        • Posted by Tough Love on May 6, 2015 at 12:27 pm

          Like you said …. your opinion.

          And when the Blog’s focus is reform of Public Sector pensions, the opinions of Public Sector retiree (such as yourself) feeding at the Taxpayer’s teat are hardly unbiased.

          As for my aggressive approach, it pales in comparison to the insatiable greed and taxpayer-be-damned mindset of almost all Public Sector workers/retirees.

          Reply

          • Posted by Anonymous on May 6, 2015 at 10:25 pm

            TL like more like hitler and his generals than christie. Every time she replies she censors the next person by preventing them from replying again.

          • Posted by Tough Love on May 6, 2015 at 10:59 pm

            AGAIN, LOL….

            The more you follow my every word, the more I SMELL your deep concern about your pension.

            And well you SHOULD.

        • Posted by S Moderation Douglas on May 6, 2015 at 2:13 pm

          Unbiased is not the same as untrue.

          You might have a more productive dialogue if you didn’t poison it with terms like “insatiable greed and taxpayer-be-damned mindset of almost all Public Sector workers/retirees.”

          And your habit of assuming that anyone who doesn’t agree with you entirely is a public sector worker or retiree, is tiresome and illogical.

          The ball is in your court. You are in danger of becoming a caricature of yourself and a laughingstock. Oh!! Too late!!

          Just trying to help. “Moderation in all things.” As they say.

          (You did write: “almost” all Public Sector workers/retirees.” That’s a start.)

          Reply

          • Posted by Tough Love on May 6, 2015 at 4:58 pm

            I state it as I see it, and as I see it, …..“insatiable greed and taxpayer-be-damned mindset of almost all Public Sector workers/retirees.” …. is right on the money.

            Yes, my “opinion”.

  3. Posted by Javagold on May 6, 2015 at 12:30 pm

    Why so much bickering. We have a front row seat , to witness an epic collapse. Pass the popcorn. And enjoy.

    Reply

    • Posted by Tough Love on May 6, 2015 at 1:31 pm

      Unfortunately it NEEDS to collapse … for the greedy workers/retirees to get the message … that it’s ALREADY insolvent. and can’t be “fixed” in it’s current form.

      Reply

    • I agree that it will be epic and, from the perspective of a now former Jerseyan AND former Pennsylvanian, very popcorn-worthy. Now in Neuchatel, Switzerland, I think I may have finally reached a safe distance!!!!

      Reply

  4. Posted by Anonymous on May 6, 2015 at 1:46 pm

    Whether the answer is yes or no the problem remains. Will state revenues or investment returns be greater next year? Doubtful. If yes what will this mean for services?

    Reply

  5. Posted by Eric on May 6, 2015 at 7:03 pm

    Former Jerseyan:
    Switzerland is not a “safe distance” in that it has a wealth tax where all of one’s assets are taxed by the government without even being “triggered” by a transaction.
    You should have tried Singapore.
    Eric

    Reply

    • Switzerland might as well be on a different planet compared to some of the Democratic controlled sh@tholes we have in the good ole USA.

      Reply

    • In my case, the new employer is very generous and more stable than anything I could find in NJ or PA, and I tired of running my own business. Overall, it works for me. Once I get my dual citizenship (Italian via jure sanguinis) I may just give up the little blue book. There are certainly things I miss about other parts of the US (vs NJ) and others that I don’t like about Switzerland.

      However, at least here the voters are reasonably intelligent and well informed. Only citizens can vote and that takes a minimum of ten years to earn.

      Reply

      • Btw, the wealth tax is infinitesimal, and the federal, canton, and commune tax is about 28 pct without considering deductions. In my bracket, it’s better here than NJ and about the same as PA inclusive of state and property taxes.

        I hope things do get better in the US generally, and may someday return, but NJ is hopelessly corrupt and insolvent. A great place to be from….

        Reply

  6. Posted by Equal Time on May 6, 2015 at 11:29 pm

    In some systems the employer has negotiated a deal with the pension fund Board to pay the annual requirement at the beginning of the fiscal year, receiving a discount equal to the assumed rate of investment return in the fund. This discount can be sizeable (7% or more) and the concept is worthy of pursuit by any government employer, especially New Jersey.

    Reply

  7. Posted by Eric on May 6, 2015 at 11:48 pm

    Former Jerseyan:
    Good luck to you. I have taught some math classes in Germany. Most universities use English as the language for lectures.
    My English is not anywhere as good as my German, but I am working on it.
    I am happy for you!
    Enjoy beautiful Switzerland.
    Eric

    Reply

    • Thank you, Eric – this is something my wife and I had always wanted to do. Once my wife and I cut our ties to NJ by moving to PA a few years back, we found the idea of moving an ocean rather than a river away was not nearly as high a hurdle as it once looked. Perhaps I should give NJ credit for making the future there look so bleak?

      I grew up in South Brunswick at a time when taxes were low, income taxes were non-existent, and you could catch frogs and tadpoles in the woods behind your house. NJ still has some nice places to bike and hike (something I really price in Switzerland now), but unless you have a gov’t job or are independently wealthy there is no way to justify staying.

      We could not face the prospect of ever-increasing property taxes and threats of higher income taxes once gridlock reverts to one party control in Trenton again. Does anyone still in NJ think a Republican could ever win another gubernatorial or senate election in NJ? Even though I can’t vote in Switzerland, I really admire the way federalism is practiced here now.

      By the way, you are right that the wealth tax will add about 5,000 a year to my taxes (it is about 1/2 of a percent for the amount of wealth I have “on the books”, but note that debt cancels out wealth for purposes of the calculation). Also, one can “Canton-shop” here for a lower wealth and income tax just like you can in NJ by moving from NJ, NY, or CT to, say, TX or even PA with its 3% flat income tax.

      Reply

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