More Questions After the Burgos Decision

According to the state Supreme Court, New Jersey now needs to make pension contributions based on how much it can afford which means those mini-payments that a corrupted political/actuarial cabal comes out with can be completely ignored….and they will be.  So where do we go from here?

Here are the four big questions with my gut-guesses at the answers?

Will there be an appeal to the Supreme Court of the United States?

Yes but I do not think the court will hear it.

What does this mean for the COLA case?

The New Jersey Supreme Court will likely hear it now and those Christie appointees will find an angle to again reverse.

What does this mean for a Christie presidency?

It changes nothing.  He will enter the race in a couple of weeks, provide some entertainment value undermined by the seriousness of the problems he exacerbated, and bow out after making a deal with the Republican front-runner for a DC job.

When do the plans go bust?

A more complicated answer since there is one fund where assets are split among the separate plans theoretically.  Those plans that the state has responsibility for funding (PERS-State, PFRS-State, State Police, Teachers, and Judges) will see negative assets with a receivable item from the other plans (PERS-Local and PFRS-Local) for a few years until all the assets are exhausted and it becomes pure pay-go if taxpayers can afford the $15 billion annual payments by then.  They can’t.

As for a timeline we can look at the first plan likely to zero-out: the Judicial Retirement System (JRS).  In that plan’s July 1, 2014 actuarial report (page 18 of 36 in the pdf) there is a drop-dead date:

As of June 30, 2014, the market value of assets is less than the actuarial liability attributable to retirees. Furthermore, if the assets contained in the Annuity Savings Fund (ASF) of $50,759,400 are excluded, the funded ratio of the remaining market value of assets to the actuarial accrued liability for retirees is 43.6%.

As of June 30, 2014, the ratio of market value of assets to the prior year’s benefit payment is 5.0. This is a simplistic measure of the number of years that the assets can cover benefit payments, excluding future increases in those payments, State and member contributions, and investment income. This ratio decreased by 3.8% from the previous year’s ratio of 5.2. If ASF assets are excluded, since they represent accumulated contributions from active and inactive members, the ratio is 4.0.

With assets of $250 million, annual payouts of $50 million, and annual employee contributions of $4.5 million while investment earnings are likely to turn sharply negative after the collapse of those alternative investments that leaves the state responsible for augmenting the assets in amounts that the court says is completely up to their own discretion.  So July 1, 2018 looks like a solid date as to when the only assets in the JRS plan will be what remains of the employees’ own contributions.  July 1, 2019 is when those too are gone.

 

 

 

28 responses to this post.

  1. Ha ha. Seems like the Judges know their Pension Ponzi will collapse first. So may as well speed up the collapse of all the different Ponzi. Smart.

    Reply

  2. Posted by bpaterson on June 10, 2015 at 11:05 am

    its not really funny. We can be sure, that the bottomless pockets of the taxpayers are still high in their minds as an out. Here is the way government works in a nutshell, whether it be pain or any program funding, or any retrieval of money for their uses: Does one spread the cost over a small base or a large base. On this issue think small base=public sector, large base = taxpayers.

    Reply

    • Posted by MJ on June 10, 2015 at 11:25 am

      If it was ruled that the pensions are not a contractual obligation then how would a further tax burden be placed on the good citizens of NJ. Our taxes aren’t high enough?

      Reply

      • Pensions are still a contractual obligation (whatever that might be worth in NJ). The ruling said that you can refuse to pay any bill in excess of $350 million (1% of the state budget) if you felt like it. That OPEB for current retirees the state is paying is probably way over that.

        Reply

        • Posted by MJ on June 10, 2015 at 11:59 am

          TY for clarifying.

          Reply

        • Posted by briandin on June 10, 2015 at 1:43 pm

          Contract analysis in NJ and at the Federal Level is always governed by the so-called rational basis test. If the government can show a rational basis for not honoring a contract, they will be relieved of the burden.

          I personally would say a decaying infrastructure and insufficient resources to manage other spending priorities would be more than adequate. I have said this all along. As another poster said, this just moves the day of reckoning a few years forward.

          There is no way a millionaires tax will bridge the gap, and the less affluent taxpayers are already broke. NJ = Detroit.

          Reply

        • Posted by FAP on June 11, 2015 at 2:39 pm

          Does the ruling have any legal effect on what the State is obligated to pay out in benefits?

          Reply

    • Posted by MJ on June 10, 2015 at 11:29 am

      That’s right the only plan from democrats is to tax millionaires Does that include themselves since even if they go in not well off they sure become millionaires as career politicians

      Reply

  3. Posted by Tough Love on June 10, 2015 at 11:21 am

    John, Very interesting. I did not know that the assets of the State and Local Plans were commingled.

    Is there any legal way for the Local Plans to step in to prevent the Local-to-State cross subsidy once the State Plans run out of assets?

    Reply

  4. So two wolves and a sheep voting what’s for dinner ??? Got it.
    Public takers got greedy. Killed the golden goose. Got exposed. Taxpayers sheep finally waking up. Reality is here.

    Reply

    • Posted by Anonymous on June 10, 2015 at 2:09 pm

      Asshole

      Reply

    • Posted by Tough Love on June 10, 2015 at 2:18 pm

      Here’s the bottom line “MUST”, and BEFORE the taxpayers consider ANY tax increases to help fund a SHARE of the current unfunded plan liabilities…..

      The DB pensions MUST be frozen (ZERO future growth) for the future service of all CURRENT workers, and replaced for their future service with a DC-style Plan with a taxpayer contribution EQUAL TO but no greater than what Private Sector Taxpayers typically get from their employers.

      AND taxpayer contributions toward their healthcare benefits (taken separately while “active” and “retired”) must not exceed the average of such subsidies afforded Private Sector workers by their employers…….. noting that “retired” Private Sector workers rarely get ANY employer-provided healthcare subsidy any longer, and NOBODY in the Private Sector gets “Platinum+” coverage as do NJ’s Public Sector workers/retirees.
      ———————————————-

      EQUAL ….. but NOT better.

      Reply

      • Posted by Anonymous on June 10, 2015 at 5:04 pm

        John, are you going to start banning people from this blog because TL thinks that you should do so?

        Reply

        • Posted by Tough Love on June 10, 2015 at 5:23 pm

          If John feels that my comments (on balance) are not helpful and contributory, and were prefer that I not comment, all he has to do is ask, and I will comment no further.

          Reply

      • Posted by Anonymous on June 10, 2015 at 5:05 pm

        You should be removed from this blog for saying equal but not better over 100 times according to your own rules that is.

        Reply

  5. Posted by Lucas ustaszewski on June 10, 2015 at 5:39 pm

    Amen

    Reply

  6. As a former financial executive in the (net) taxpaying private sector, here is what I think is a pragmatic approach to meeting a semblance of the outrageous unfunded pension liability.

    – sell the GS Parkway, Expo and Stadium Authority, NJ Transit, NJ Medical and Dental School. Put all proceeds into pension fund(s). Former quasi-state employees in those entities now work for their new owners. All former annual subsidies for NJ Transit and Medical School put into pension fund(s).

    – pensions are capped immediately at a max of $60K per annum and that attained only with 35 years of service (lesser amounts pro rata for fewer years of service). Does not matter if you make $200K and have worked for 50 years; the max annual payout is $60K. Can’t collect until age 65, with 8% annual haircuts (like SS) if earlier commencement is desired, but no payments before age 62. If LEO and FF “can’t function as normal” after age 50 then they will have to become 911 operators, toll collectors, admin types etc. to earn a salary (ex-combat pay) until they can begin receiving pension benefits.

    As extreme as the above may sound to the typical PS drone, particularly LEO and FF, these are the types of harsh actions that the for-profit world would take to deal with this crisis. Some pension is better than no pension and NJ would be better off not running money losing enterprises.

    Reply

    • Posted by Anonymous on June 10, 2015 at 9:58 pm

      What has been earned cannot be reduced. The state will default on its bonds before pensions are reduced.

      Reply

    • Posted by Cnjxgrunt on June 11, 2015 at 10:49 am

      I started with state about 3 years ago after 3 years of working for that state through a temp service. I am 31 right know. In 34 years how much will 60k be worth in terms of in flation maybe 24k. I’d rather just be able to not pay into the pension system and invest my money as I see fit.

      Reply

  7. Posted by Porgie on June 10, 2015 at 8:37 pm

    I love when former financial executives blame others for economic ills. It makes me smile.

    Reply

    • Posted by Lucas ustaszewski on June 10, 2015 at 8:54 pm

      Very few PE get a 60000 pension right now. Most are between 20000 and 30000 despite what you hear. The so called excessive pensions are a fiction.

      Reply

      • Posted by Tough Love on June 10, 2015 at 10:28 pm

        Quoting ……….. “Very few PE get a 60000 pension right now.”

        Typical Public Sector worker/retiree BS………..

        Look at the column ” Annual Total pension payments” here:

        http://nj-pensions.findthedata.com/
        ——————————————————–

        And the $$$ payout ALONE is VERY misleading. ALL PSWs can collect full/unreduced pensions at far younger ages than those in the Private Sector where an actuarial reduction (of 4%-6% PER YEAR OF AGE) typically kicks in if you retire before age 65.

        Reply

  8. Posted by Lucas ustaszewski on June 11, 2015 at 5:08 pm

    Well face the facts. my pension is far aooove average after 33 years and most of the years as an executive and my PERS pension is 39000 which is higher than 90% of my time period. Just a fact. Everything else is BS.

    Reply

    • Posted by Tough Love on June 12, 2015 at 12:09 am

      Lucas,

      With a final pay under $71K in 2006 I hardly call that “executive” level.

      I have stated MANY MANY times that all NJ PUBLIC Sector worker pensions are “grossly excessive” when compared to the pension of a Private Sector workers retiring at the SAME age, with the SAME pay, and the SAME years of service.

      Here’s why YOUR pension is grossly excessive under such a comparison.

      (1) Your formula factor (per year of service) is just about 1.7%. A comparable Private Sector worker would likely have an average formula factor of about 1.25% giving you an “advantage” of1.7/1.25 =1.36 or 36% ….. just from THIS element.

      (2) you retired with 31 years of service at age 56 with a full/unreduced pension. The Privater Sector worker’s pension Plan would likely have a “Normal Retirement Age” (NRA) of 65 (but sometimes 62 with very long service) and include an early retirement reduction of about 5% for EACH year of age that you retire before your NRA. Note that Social Security uses an even higher 6% in such early retirement calculations.

      So even if the Private Sector worker had an NRA of 62, he/she would STILL have his/her monthly pension payment reduced by 5% x (62-56) = 30%

      This gives you an “advantage” of 1 / (1- 0.30) = 1.43 or 43% ….. just from THIS element.

      (3) While COLAs are now suspended, before that suspension you received COLAs that in total increased your pension by 4.8% ……. that the Private Sector worker would NOT have rec’d, as Private Sector Plans NEVER include built-in COLA-increase provisions.

      This gives you an “advantage of 1.048 or 4.8% …. just from this element (and potentially FAR MORE if the current COLA suspension is reversed, or ends at some time in the future).

      ——————————————————————–

      In calculating YOUR net pension “advantage”, the individual “advantages” noted in 1, 2, and 3 are multiplicative, giving you a total pension “advantage” of 1.36 x 1.43 x 1.048 = 2.038.

      In essence your pension, of which your own contributions (WITH investment earnings) likely paid for no more than 10-20% of the total cost (with the Taxpayers responsible for the 80-90% balance), is more than 2x as rich (from the 2.038 above) as the (VERY LUCKY) Private Sector worker retiring at the SAME age, with the SAME pay, and the SAME years of service.

      And I said “LUCKY” because I assumed that this Private Sector worker actually participated in a traditional “Final Average Salary” Defined Benefit Pension Plan similar to yours. Today, only 8% of Private Sector workers are currently accruing benefits in such Plans, with the remainder participating in getting MUCH MUCH less generous Cash Balance Plans, 401K Plans, or nothing.
      —————————————————————

      And lets not forget that YOUR retiree healthcare is either free or heavily subsidized, at a total annual cost of $25K-$35K annually for pre-Medicare “Platinum” Family Coverage ….. vs TYPICALLY NOTHING today in employer-sponsored retiree healthcare benefits for the Private Sector worker.
      —————————————————————–
      —————————————————————–

      Readers …… don’t fall into the “trap” by thinking that $39K annually is not a big pension. I agree, by itself it’s not, but as a PERS retiree, Lucas is ALSO getting Social Security, and why should he be excused from saving mightily out of each net pay check for a secure retirement … just as Private Sector Taxpayers must do.

      The PROPER way to judge the “generosity” of a Public Sector pension is to ask …. what would a similarly situated (in pay, age at retirement, and years of service) Private Sector worker typically get in pension benefits from his/her employer.

      Taxpayers SHOULD indeed fund Public Sector pensions EQUAL in value to what they get from their employers, but there is ZERO justification to fund MORE …. as we do NOW, and by a factor of over 2 times as demonstrated above.

      Reply

  9. Posted by Lucas ustaszewski on June 11, 2015 at 5:33 pm

    And as I said percentage wise the top level pensions are a very small number compared to the thousands of retired workers on the roles. and especially, state employee salaries which fyi are capped at around 110000 I believe it is, including chief executives. so their pensions are rarely 60000 or above. As stated most PERS pensions range between 20000 and 30000. Of course you see Education Superintendants with much higher salaries and pensions, but they are not the norm and do not represent where most state employees and retirees stand. There are private sector workers who make 10000000 a year, but of course they are not the norm for private sector workers either. But there are many hundreds of private sector workers who make over a million a year and zero public sector workers who make a million a year. Find me a PERS state retiree who has a pension of over 100000 and are there any that are even at 80000? I really don,t know any.

    Reply

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