Out of the Spotlight

Public employee unions in New Jersey, through NJ Spotlight, will in three weeks hold a roundtable to discuss:

How do you reform a system that’s at least $44 billion in debt and saddled with retiree healthcare costs that are spiraling out of sight?

Due to years of underfunding, New Jersey’s public-employee pension system is at least $44 billion in debt . The retiree healthcare system is an even bigger hot spot, as costs spiral out of control. With baby boomers retiring and the costs of the system threatening to strangle all discretionary spending, officials are searching for a way to solve these problems. Democrats are looking to bolster the system with guaranteed payments. Republicans are hoping to transform the system using 401(k)s. Both parties are looking at ways to create lower costs through efficiencies in the health system.

Join NJ Spotlight July 8th when state and regional leaders  gather to discuss the problem and possible solutions. Learn how this issue can affect the retirement of public employees and impact taxpayers and services.

It should be cathartic at least………….but productive?

Actuarial valuations are supposed to be a best estimate.  It should be as likely that liability values are over- as under-stated.  For public pensions in general, and New Jersey in particular, that is hardly the case and everyone at least senses it.

Note that the ‘at least $44 billion’ in state debt came from headlines when the July 1, 2015 actuarial reports came out and is supposed to be official.   The real amount of the state unfunded liability is far higher (or $0 if the state is now legally allowed to arbitrarily cut all benefits) and that should be topic 101 at this roundtable since solutions to a $44 billion problem would be far different than those to a $150 billion one.

20 responses to this post.

  1. Posted by Anonymous on June 17, 2016 at 3:08 pm

    Hey John isn’t it true that under Chris Christie the pension system has slipped further into debt than under any other governor. Also do you have the figures touche what the debt was before he took office and what it is now I bet it is a total embarrassment


    • With COLAs gone it did lower the liability values from what they would have been but otherwise defined benefit accruals have accumulated over Christie’s time.

      Even without COLAs these benefits cannot be paid without substantial additional contributions into the plan. When Christie came in there was a chance to (a) freeze accruals, (b) clean up the pay-to-play miasma at all levels in the state, and (c) pay off the unfunded with the savings from (b). It’s too late for that now. Not to say that we don’t have the corruption but we do have 7 more years of accruals, dodgy assets, and no ready source of the contributions that would be necessary to avoid more benefit defaults.


      • Posted by bpaterson on June 17, 2016 at 4:26 pm

        one can easily say the last 10 years gone exponential, sort of like an inverted compounding interest. The next governor will probably be a democrat and suddenly the exponential climb of this debt wont be embarrassing, but to these anonymous posters will just be “a minor issue that just needs some addressing”. Politics, unions and corporations have destroyed our great nation and this wonderful state.


  2. Posted by levines on June 17, 2016 at 3:12 pm

    Outcome of the workshop is easy to predict: fight like hell to get the Constitutional Amendment passed in Nov, and then with this “victory” in hand continue the legal/political fight to sustain the ultimately-unpayable payments for a few more years. Not that dissimilar to the tobacco companies’ strategy of losing as slowly as possible


  3. The pay-as-you-go Systems of 100 years ago went bankrupt, really. The pre-funding principle for funding the employer’s share is now nearly a century old. The Court’s decision apparently is an ally of the pay-as-you-go scheme which was DISCREDITED a century ago. Q.: Are we not on a path to return to a pay-as-you-go system?


    • A lot of plans are already at pay-as-you go including many church plans (not subject to ERISA funding rules) and multiemployer plans (subject to weak ERISA funding rules) along with all those public plans who look better than they actually are thanks to the collusion of the actuarial/political cabal.


  4. Who remembers when the City of New York declared a de facto bankruptcy in the mid 1970s? The pension system was 37 percent funded—–it never converted to a 401(k) type system but was saved albeit with a watered down version of what the defined benefit was. At that time the “commission” was headed up by Richard Shinn from the Metropolitan Life Insurance Co.

    With that said, the NJ mess can also be addressed successfully if the stakeholders have a common desire to do the right thing.


    • Posted by dentss dunnigan on June 17, 2016 at 4:16 pm

      Yes but interest rates were at 7% ….now there at zero and soon to negative ,no way payments into the system could ever cover the drawdown of 10 billion per year and growing by 500million every year ….you need higher rates to get the returns needed .


      • Posted by bpaterson on June 17, 2016 at 4:31 pm

        and the trend globally is interest rates are going into never before seen negative territory. The plans and funding are toast well into the medium term future unless the abbot district granting or whatever the iteration is called these days is abolished. Last gasp is sell the turnpike, and adjust all pension and health levels to sane levels.


    • Posted by George on June 18, 2016 at 8:54 pm

      “common desire to do the right thing.” I remember NYC in the 70s. If you don’t rent Midnight Cowboy, Taxi Driver, New Jack City to see what a financial crisis is like.

      New Jersey is already quite hollowed out. Bell Labs does not seem to exist anymore. I see empty commercial space all over the place.


  5. Posted by MJ on June 17, 2016 at 4:37 pm

    John, Didn’t Christie’s pension commission already discuss these issues and put forth some recommendations? How will the round table be any different? Just seems silly to keep talking about the same thing over and over and then do next to nothing to try and solve the problem moving forward.


  6. Posted by skip3house on June 17, 2016 at 5:47 pm

    NJ confuses analytical ability with the Legislature creating all these 8th grade logic problems. Does not seem to be much in common with the two. Ask who/how NJ finds itself way behind in funding schools based on ability to pay – not school property tax on homes – and you might find the old suicidal adage ‘The poor/middle class has most of the kids so let them pay for the schools.’
    About the same non-ability with NJ Pensions/Retiree Health. Took zero ability to promise the world, then not fund for current services/obligations rendered.
    TTF would do nicely with just a Sales Tax of 10%, no need for Ballots/wealthy tax cuts/ etc.


  7. Posted by Eric on June 17, 2016 at 5:56 pm

    Perhaps with Bernie Sanders brilliant campaign, regardless if you support the candidate, single payer health care may have arrived. The corrupt, controlling interests behind the escalating costs of Obamacare, have no place left to hide as this nation’s heath care system is now dead. The premiums are no longer affordable.
    Hillary may have to return a hundred million dollars or so, from the Clinton Foundation, to Big Pharma. She would have no problem writing a “good” check for that amount from all of the money she and Bill have stolen throughout the years.
    The Clintons have “removed” White House furniture, that they were forced to return, rented out the “Lincoln bedroom”, and even pilfered Air Force One. If something were not “nailed down” the Clintons ended up stealing it.
    Single payer would at least solve NJ’s health care crisis. I bet that the corrupt interests are far too powerful to ever permit the will of the people to prevail.
    We are the expendable “useless eaters”, nothing more.


  8. Posted by Anonymous on June 18, 2016 at 5:06 pm

    Just a thought, fair being fair – LOL! This amendment is only relevant for STATE funded (or lack thereof) pensions because LOCAL funded pensions are legislative mandated by the STATE to do what it is not – PAY!!


  9. Posted by Eric on June 18, 2016 at 5:39 pm

    Regardless of the pension system you are in, which is irrelevant, bondholders in NJ will get paid BEFORE pensioners. Read the proposed amendment.


    • Posted by Anonymous on June 18, 2016 at 7:03 pm

      I understand your point but I guess you didn’t (or don’t want to) get my point?


      • Posted by Anonymous on June 18, 2016 at 7:05 pm

        Oh forgot to add; where do pensioners stand now in relation to bondholders OR is that up to another NJSC ruling?


  10. Posted by Eric on June 18, 2016 at 7:53 pm

    The NJ Supreme Court has obviously become an extension of the governor’s office, with the exception of Justice Albin. The Chief Justice, desperately needed to obtain his reappointment, so many have opined, rightly or wrongly, that he “sold his soul to the devil” in order to achieve that goal. I have no information on this topic.
    It is really sad, if true, since he is an extremely bright and capable man, who has unfortunately and sadly, seemingly morphed into a “run of the mill” politician. I have spoken to him regarding legal matters in the past. He does have a great deal of talent, and, I am sure, knows that, what he has done, was very wrong on many levels. Legal precedent has been destroyed in the State of NJ. There is no more legal certainty or predictability when raw politics rules the day. A Banana Republic has emerged in full regalia.
    The proposed amendment, ranks bondholders before pensioners, if a payment frenzy were to ensue. If NJ were not at the bottom of the heap, regarding debt load, corruption, and fiscal mismanagement, it would not be material. If If If ….
    If pigs could fly!
    PS I did understand your point.


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