No Giving Away New Jersey’s Honor

For what is generally considered a pro-union liberal paper the Star Ledger came out with a rather amazing editorial today:

Sweeney’s pension plan is a giveaway to unions

They got it wrong.

The point of the editorial is that in exchange for putting a requirement in the constitution that the state make the ludicrously inadequate contributions developed by ‘generally accepted actuarial standards’ for public plans there should be some unspecified concession by public workers on health benefits.

However, what the Star Ledger misses is that the real giveaway has been going on for decades (and continues still) as the value of promised pension benefits get grossly understated by a corrupted actuarial/political partnership.  What Sweeney’s amendment does is commit the state to honor a funding number that they are allowed to manipulate either by tacit intimidation of their experts or outright repudiation through legislation.

It basically says that New Jersey has to honor its promises to pay benefits that had previously been given away. Whether it will work is debatable since honor is something that most of the politicians in this state do not have to give away.

.

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PS: In Josh Freed’s documentary The Trouble with Experts there were a couple of points made about expert opinions that might shed some light on why the media keeps getting duped into adopting such ill-considered positions:

54 responses to this post.

  1. Posted by Tough Love on December 13, 2015 at 7:36 pm

    John, you only took that analysis half way, The “risk” also put on the taxpayers (should a Constitutional Amendment to actually pay the full pensions AS PROMISED) is that “eventually” that gross under-funding butts heads with reality (the TRUE amount REALLY need to pay the promised pensions) and that full-funding 5 years hence will likely be $5-$10 Billion HIGHER than they now say it will be.

    With no escape clause from that eventuality, NJ is sunk.

    Reply

    • NJ certainly has escape clauses whether it’s the governor’s emergency fiscal powers, the legislature redefining ‘required contribution’, or getting the actuaries to further low-ball their numbers (though that would be the least likely considering how low they have sunk them already) there will be IOUs going into the funds before they get close to making anywhere near an honest contribution.

      Reply

      • Posted by Tough Love on December 13, 2015 at 8:21 pm

        YES with respect to the Governor’s emergency powers (although using it to nullify a Constitutional Requirement is a high bar), but with NJ’s State pension Plans likely to be out of assets in 5-7 years, redefining “funding requirements” (to some lower level) is irrelevant, because (with zero Plan assets) the annul “funding” equals the year’s pension payouts…… unless those PAYOUTS also become IOU’s.

        Reply

  2. Posted by Anonymous on December 13, 2015 at 8:29 pm

    Sweeney (or whomever) can only propose, it’s up to the voters – so what’s the worry?

    Reply

  3. Posted by Anonymous on December 13, 2015 at 8:32 pm

    Hi John:

    For a 63 year old state worker ready to retire what should I plan for. I have 35 years and some debt. I have 800 K liquid. Will the pension hold for long enough for me to get out from under 600 K obligations over 7 years ? How do I plan / Wife is 8 years younger, Or should I keep working ?

    Reply

    • The pension should hold out (with or without COLAs) for a few years, depending on when the next market ‘correction’ comes and how soon they admit their hedge fund investments are garbage, and then they will be on the table.

      I see the state making the monthly pension payments but severely cutting back on their health insurance obligations – probably by making retirees pay a lot more) and using those savings to make pension contributions. At 63 you should be able to make it to Medicare before it really hits.

      As to when monthly benefits get cut I see three scenarios:
      1) Democrat wins in 2017 and nothing happens for at least those four years.
      2) Republican wins in 2017 and anything goes.
      3) Christie ends his presidential run in humiliation and takes the axe out right away to make a point (the question is whether he will be able to again make kissy-face with Sweeney like in the old days).

      Reply

      • Posted by Anonymous on December 14, 2015 at 9:24 pm

        John,
        How would your scenarios change IF the P&B Commission recommendations were immediately enacted?

        Reply

        • No chance of that except maybe as a justification for some adjustment in health care costs that workers/retirees will have to pick up.

          On the pension side the P&B commission was all about future accruals (ie eliminating them in favor of DC plans) but all that means is speedier default as the employee contributions for those future accruals will not be available for paying out current retirees.

          Reply

          • Posted by Tough Love on December 15, 2015 at 3:53 am

            Noting of course that ….. needing employee contributions for future accruals just to be able to continue paying out current retirees …. pretty much defines a PONZI scheme.

          • Posted by Anonymous on December 15, 2015 at 8:23 am

            John interesting analogy on the pension side of the P&B recommendations. Sounds like, in your opinion, the Commission intended to further accelerate the pension funds demise?

          • Though obviously not their stated goal the Commission did do damage by not focusing on the core problem (actuaries and politicians lie about benefit values and can not be trusted with managing defined benefit plans) and so more years are wasted as the unfunded tab grows more massive.

          • Posted by Anonymous on December 15, 2015 at 8:30 am

            I left out the following: don’t you think a more prudent approach to, as TL notes, keep the ponzi scheme going. Reducing the future accruals by say ~40% while maintaining the current employee contribution? In addition to the health care coverage changes with the “savings” dedicated to the employer contributions into the pension funds?

          • Posted by Anonymous on December 15, 2015 at 10:07 am

            John,

            So based on your reply post now the mega billion dollar question!

            Given where things are what would you recommend going forward?

          • From when I started really understanding the situation this has been my solution:

            https://burypensions.wordpress.com/2012/05/18/terminate-the-new-jersey-defined-benefit-plans/

          • Posted by Anonymous on December 15, 2015 at 12:00 pm

            John,

            My spouse says it doesn’t take much but you’re contacting nfusing me. Your third comment implied going to a DCP only accelerated the funds demise. Then your recent link post implies that’s what you’ve been suggesting all along?

            Please help me clear my mind on this is me.

          • The DCP is the only sane choice for any government pensions since the actuarial /political cabal has ingrained funding methods whose sole purpose is deception. DC plans would eliminate most of the games that get played (as well as lowering benefits for the older public workers who are the more involved) which is why politicians (and actuaries) are against them.

            Taking future works out of the DB plan and into a DC would take away one of the inputs into what is now a Ponzi scheme (those employee’s contributions) which is what would speed the road to true pay-go.

          • Posted by Tough Love on December 15, 2015 at 12:01 pm

            John, I just re-read that inked post and the comments.

            3-4 years have gone by and what was BAD then, is now MUCH WORSE ….. and the Unions/workers STILL want all that they were promised, with a to-hell-with-the-taxpayers mindset.

          • Posted by Anonymous on December 15, 2015 at 12:12 pm

            Sorry about the spell demon; meant to say you’re confusing me……

          • Posted by Anonymous on December 15, 2015 at 12:41 pm

            OK and as to the funding of accrued benefits earned to date? Pay for that with a combination of new dedicated revenue and savings from health care coverage changes?

          • That’s when the policy discussion can take place. If it’s decided to pay $15 billion annually for public worker pensions and heath benefits then so be it. But when that number is artificially set at $5 billion any decision will be ill-informed.

          • Posted by Tough Love on December 15, 2015 at 12:59 pm

            Anon,

            PAST Service Public Sector pension accruals are (mostly) no less grossly excessive than current accruals, and while PAST service accruals have greater legal protection from reduction, there should be a limit as to how much Taxpayers should contribute to help fund (toward the HUGE existing shortfall) promises so obviously excessive, unnecessary, unjust and unaffordable.

            A “CAP” (in the form a “% of pay”) ……. keeping in mind how much Private Sector employers contribute towards THEIR retirement security …… should be set, encompassing BOTH contributions toward FUTURE service in a DC Plan AND contributions towards amortizing PAST service unfunded liabilities, that limits TOTAL Taxpayer contributions ….. certainly to no more than 10-15% of pay for ANYONE (Safety included).

            Of course if Public Sector workers received employer-sponsored Retiree healthcare subsidies EQUAL TO but no greater than their Private Sector counterparts ….. essentially NOTHING …. quite a bit of money could be freed up are redirected to pay down these Past Service pension liabilities.

          • Posted by Anonymous on December 15, 2015 at 3:03 pm

            No question on the health care coverage issue but it sounds like you’re absolving the State and Local (taxpayers) of the accrued benefits earned. No doubt the Governor’s ultimate goal, initially via the P&B Commission recommendations.

            Prior posts you advocated P&B Commission reforms which, to my knowledge, affirmed the funding of accrued benefits earned.

          • Posted by Tough Love on December 15, 2015 at 3:43 pm

            Quoting Anon ….. ” but it sounds like you’re absolving the State and Local (taxpayers) of the accrued benefits earned. ”

            No, I’m taking a “wait-and-see” approach as to HOW MUCH in the way of taxes it would take to fund PAST Service accruals (DEFINITELY feeling that such excessive PAST-Service promises were NEVER justified).

            A great deal of the money MUST come from VERY VERY material reductions in the Platinum+ healthcare converge now granted both actives and retirees.

            That’s why I call for a “CAP” (as a %-of pay) as to what the Taxpayers should agree to going forward.

      • Posted by Anonymous on December 23, 2015 at 4:04 pm

        Thank you JB for your response to my above pension question. Much appreciated. You are a light in a benighted political environment.

        Reply

  4. Posted by Eric on December 13, 2015 at 10:14 pm

    John:
    I know some PUBLIC WORKERS who are voting NO to the proposed constitutional amendment regarding the pension contributions. They know that in the proposal, Sweeney makes the pension plan subservient to the bondholders in case of a crisis. Also, the Debt Limitation Clause prevails over any constitutional amendment requiring the state to make the proposed pension payments. They described this to me as a “one two punch.” They suspect that if a crisis were to happen, the pension fund would simply not receive the agreed upon contributions. They would rather Sweeney wait until Christie is gone, since any democrat would make the contributions without selling out pensioners to all of the bondholders. This is key. Many bondholders receive insurance in case of a default;pensioners do not have that option. It would not matter if NJ were not in the same fiscal shape as Puerto Rico.
    Eric

    Reply

    • Posted by Tough Love on December 13, 2015 at 10:37 pm

      Very interesting …..

      Reply

    • Posted by Anonymous on December 13, 2015 at 11:32 pm

      Eric,
      Any chance of breaking down the group that would vote no by;
      1. Vested greater than 25 years
      2. Vested less than 25 years
      3. Non- vested
      4. Retired
      Just curious, thanks.

      Reply

    • Posted by The Resident Nutcase on December 14, 2015 at 8:37 am

      Eric….you hit the nail on the head.
      Many Local public sector safety unions do not endorse this amendment. It’s just bad policy all around. I know this flys in the face of everything TL thinks these unions stand for. But it’s the truth. Amazing how one group of people so hated upon…. Can still make rationale deductions.

      Reply

      • Posted by Anonymous on December 14, 2015 at 9:09 am

        Yeah of course the Locals (excluding teachers) are against it. The Local P&FRS & PERS has the State mandate already requiring their contributions. Seriously nothing is concrete but right now we’re on quick sand. Got a better approach? Wait until Christie’s gone, run the plan assets down even more? Then what nothing has changed except the person sitting in the Governor’s office.

        Reply

  5. Posted by Anonymous on December 14, 2015 at 8:05 am

    Silly question…..if all are just turning a blind eye (willingly or unknowingly) to this supposed pension debacle and all we get to do is bitch about it back and forth, couldn’t it just go on forever? Sort of like the federal debt and printing money, if all involved are in agreement then what’s the problem as far as finances go? No one seems to be that upset over it or I think it would have been sorted out by now.

    Reply

    • Posted by Anonymous on December 14, 2015 at 8:17 am

      Guess you better run for office genius?

      Reply

      • Posted by Anonymous on December 14, 2015 at 10:00 am

        I stand corrected, the appropriate question for Eric and BH (aka, etc) is what percent were Locals (non teachers) versus State.

        Regardless of whether the amendment passes there’s nothing devious about its intentions on funding State pensions. It redefines vesting and leaves the door open for future changes of those not vested. Silent on health care means this to will be on the table going forward. Guess that’s what really has the Local P&FRS uneasy.

        Sure there are your standard escape clauses which if not clearly defined can lead to more NJSC opinions. Again my question is if not this then what? Sweeney’s half hearted attempt to give first will be followed up by him asking for the Unions buy in on a DCP for the newly defined non-vested and big health care changes.

        Who really knows, probably not Sweeney – stay tuned!

        Reply

    • Posted by Tough Love on December 14, 2015 at 6:17 pm

      (1) Quoting … “couldn’t it just go on forever? ”

      No, because in about 5 years the State Plans’ assets will be run down to zero, and to CONTINUE paying full pensions payouts to those NOW retired would require an increase in Taxes of about $8 Billion … We can’t even find $2 Billion now. Where would we find $8 Billion?

      (2) Quoting … ” if all involved are in agreement then what’s the problem”

      There is very little “agreement”. Pension reform advocates, (myself & Christie included) have tried to convey the financial impossibility of continuing the current EXTREMELY generous (and hence EXTREMELY costly and unaffordable) DB pensions in place today. They need to be FROZEN (as recommended by the NJ pension Commission), meaning ZERO future growth. And even IF that is in fact done, it is highly unlike that PAST service pension accruals can be honored in full (even WITH very material reductions in healthcare subsidies of both active and retired Public Sector workers). That’s how deeply NJ is in the hole RIGHT NOW.

      The Unions/workers are NOT in agreement with any of that, and most want all that “they were promised”, regardless of the cost, and have a “to-hell-with-the-Taxpayers” mindset.

      (3) the “Taxpayers” don’t seem that ‘upset” because most are ignorant of the HUGE magnitude of the problem and the HUGE tax increases that would be needed to “fix it” w/o VERY material pension/benefit reductions, or they ARE aware but know that they can always move out of NJ and take their taxes & businesses with them.

      Reply

  6. Posted by Anonymous on December 14, 2015 at 7:52 pm

    Geesh what’s a few billion amongst friends!

    Reply

  7. Posted by Anonymous on December 14, 2015 at 10:23 pm

    Here a question I haven’t seen answered anywhere: If the local police, fire, etc. part of the pension system has continued to be paid into year after year by both employees and the municipalities how was the COLA removed from the retirees of those systems and/or why can’t it be restored? Couldn’t an argument be made that withholding the COLA from these retirees is opposed to the state plans which are in much worse condition and have had years of non contributions or minimal ones? Surprised the locals haven’t pushed that argument.

    Reply

    • Posted by Anonymous on December 14, 2015 at 10:46 pm

      It’s all buried in c.78. Funding needs to reach a specified level before a committee can agree to reinstate them. Probably more legal ease then what I’ve stated.

      Reply

    • Posted by Tough Love on December 14, 2015 at 11:10 pm

      Notwithstanding the comments of BH, The Resident Nutcase (et al) to the contrary, NJ’s LOCAL Plans are ALSO in quite horrible condition, with funding ratios in the mid 60s under the new GASB financial reporting Standards ……….PER A NJ BOND UNDERWRITING RELEASE.

      The reason for this is that even though both the employees & Taxpayers have been religiously contributing (even though the employee share is RARELY more than 10-20% of the Total cost of the generous promises that have been granted), the systematic use of woefully inadequate (i.e. WAY too optimistic) actuarial assumptions and methodology, along with the ratcheting up of benefit formulas & provisions over the years (sometime RETROACTIVELY) means that the total contributions are not now and have never been anywhere near the TRUE amount required to fully fund these ludicrously generous promises over the working careers of these employees.

      The STATE Plans will likely be DEAD in 5 years. The LOCAL Plans may last for 10.

      If you are a PSW, I suggest a “Plan B” for your retirement needs.

      Reply

      • Posted by Anonymous on December 15, 2015 at 11:42 am

        I suggest you allow ch78 to do the job it was invented to do before you continue your venomous vile!!! Jealous blowhard!
        These people gave up enough. Time for the state to live up to their end of the deal.

        Reply

        • Posted by Tough Love on December 15, 2015 at 12:10 pm

          Why should Taxpayers support ANY grade-in to full funding of Public Sector Plans so undeniably grossly excessive ….. 3x-4x (4x-6x for Safety workers) greater in value upon retirement than those of identically situated (in pay, age at retirement, and years of service) Private Sector workers?

          Public Sector workers deserve EQUAL …. but NOT more…. and until the current DB Plans are FROZEN or the future service pensions accrual rate is reduced ALL THEY WAY down to the level typically granted Private Sector workers, NJ’s Taxpayers should support Christie’s effort to refuse to fund these ludicrously generous, unnecessary, unjust, unfair, and unaffordable pension Plans.

          You are NOT “special”, and deserving of a better deal …. on the Taxpayers’ dime.

          Reply

      • Posted by Pat on December 15, 2015 at 1:11 pm

        I am set to retire in 10 days. I don’t have a plan B!!!

        Reply

  8. Posted by Anonymous on December 15, 2015 at 4:00 pm

    http://www.nj.com/hudson/index.ssf/2015/12/prieto_sweeney_honored_for_urban_healthcare_commit.html#incart_river_mobile_index

    Oh how the self interest groups benefiting from political nunsense go far beyond public sector unions and deep into the PRIVATE sector’s various segments!

    Reply

    • Posted by Tough Love on December 15, 2015 at 5:00 pm

      While I don’t live in one of NJ’s “safety net” areas, certainly NJ’s less fortunate residents should have access to hospital-healthcare (within a reasonable distance).

      Are you advocating otherwise. …. that NJ should not support such hospitals ?

      Now if you were arguing that we should drastically cut back on care to those who illegally come to the USA for such care, I’m willing to listen …. and likely agree

      Reply

      • Posted by Anonymous on December 15, 2015 at 6:47 pm

        Are you being silly? I’m not talking about the receipents but the facilities, providers, and third party processor’s if applicable!

        Reply

        • Posted by Tough Love on December 15, 2015 at 6:50 pm

          Of course you are, but Hospitals can’t possibly extract enough money from the poor to enable their existence. Gov’t subsidy is the only way to keep such hospitals open.

          Reply

          • Posted by Anonymous on December 15, 2015 at 6:59 pm

            And the deals made in determining the particiapting (not receipents), now who is….

          • Posted by Tough Love on December 15, 2015 at 7:38 pm

            Not sure what your point is ……

            The Private Sector sure has it’s greedy element, and abuses certainly SHOULD BE addressed.

            But abuses in the PRIVATE Sector ….. no matter how great …… will NEVER justify the decades-long financial “mugging” of Private Sector Taxpayers (via the undeniably grossly excessive Public Sector pensions & benefits) by the insatiably greedy PUBLIC Sector Unions/workers, and enabled by our Elected Officials whose favorable votes on Public Sector pay, pensions, and benefits have been BOUGHT with Union campaign contributions and election support.

        • Posted by Anonymous on December 15, 2015 at 8:03 pm

          I know two wrongs don’t make a right and ignorance is bliss……..

          Reply

          • Posted by Tough Love on December 15, 2015 at 8:57 pm

            Good …… you should teach that to quite a few Public Sector workers/retirees that comment here and feel that Private Sector misdeeds indeed justify their thievery.

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