The Real Issue In N.J.s Pension Crisis – Ignorance

The latest edition of TheBackgrounder podcast delved into two sides of what to do about the pension crisis.


First, N.J.State Assemblyman Declan O’Scanlon (R-Little Silver) explained his recently unveiled 3-point plan to solve the pension crisis and, later in the podcast, New Jersey Education Association (NJEA) President Wendell Steinhauer and NJEA Executive Director Ed Richardson make their point that state payments to the pension liabilities should be a top priority in the budget, tantamount to paying debt services.

The scary (as in ‘these guys are really supposed to be solving this problem when they know so little about it’) excerpts from the podcast follow:

The ’80 is really 100′ canard:

The American Academy of Actuaries tried but politicians believe what is most convenient, then they repent.

NJEA confused as to the actual unfunded liability number:

$43.8 billion is the unfunded liability of only the the plans that the state is ‘responsible’ for funding though bizarrely when the July 1, 2015 actuarial reports came out that became the headline number with a paragraph that apparently the NJEA people missed:

The combined state and local pension debt reached $59 billion, with $86.8 billion in assets and $145.8 billion in liabilities. Of the unfunded liabilities, $15.2 billion belonged to local government employers.

Though when you do the math the total unfunded liability comes to $61.57 billion with the state portion a little under $44 billion.

A Republican admitting to the existence, if not prevalence, of Christie hacks:

What public employees are really paying for their health care:

COLA ruling reactions:

Bad decisions can’t be changed? Really?

What about deciding to give public employees COLAs and then – not.
Admitting that pension contributions are a form of surplus for NJ budget-makers:

16 responses to this post.

  1. Posted by skip3house on June 20, 2016 at 3:36 pm

    There is no rating low enough to describe the NJ Legislature ‘analytical ability.’


  2. Posted by bpaterson on June 20, 2016 at 4:17 pm

    critical thinking versus political expediency, there is not leadership to that degree and the residents loose every time. Us poor suckers in the private sector watch as the public sector reaps riches under the monopoly of govt. We worry about saving for retirement, the public sector has that covered getting 50-75% of their last years earnings for their lush pensions we worry about future inflation and escalation, the public sector gets the colas to cover that (recently not so much, eh?). We worry about the escalating costs of health care, how are we to cover that in the future, the public sector gets their free healthcare for life no matter what it costs. And to work for all our pittances to cover this we put in 40-50 hours a week, 8-10 hour days, meeting deadlines, stressing overnight what has to be done the next day.. The public sector? 7 1/2 hour days (and also 8 to be fair) and they go home without a worriful thought as to their work, just pick up wehre it was left off. Sure we get 6-8 holidays to relax while the publics get 10-12, we get the 2 weeks, many times 3 weeks to vacation. But there is usually no one to cover for us private sector workers, so we end up working OT before the vacation and OT after the vacation to make up for all those “lost” hours from vacation.

    The publics “claim” they “deserve it”. The private sector actually deserves it more, but we don’t get it because we aren’t a monopoly, nor can we actually select those that give us the raises like the public sector can. The main issue of underfunding we are facing right now results from 2 items: the public sector getting 4-5% increases every year last decade that stressed the govt budgets since another 3% pension costs are on top of that (equaling 7% labor burden increases) and forced the politicians to avoid paying into the funds; and the abbot district funding that sucked up billions while the other obligations were ignored. We are the highest taxed state in the nation, the only low tax rate we have is the gasoline tax, and now that is targets. With all this huge revenue from our highest taxes in the nation, we don’t have a handle on our finances? Structurally and financially the state is past the point of no return, thus doomed. I wish the system had been balanced and fair for the last 20 years then I wouldng have any issues. Sadly corrupt politics took over all that time, for political expediency instead of critical thinking. Bottom line, no one in this state really deserves what they think they are owed.


    • Posted by Anonymous on June 21, 2016 at 2:03 pm

      “… Public sector getting 4-5% increases every year over the past decade…??” I do not think so.


    • Posted by Anonymous on June 22, 2016 at 10:02 am

      Yea, f**k yourself pal. I work just as hard as you do I’m sure……Cry me a river. Most public employees work hard a get a modest retirement. How many are upper class? Vast majority are middle class. Private sector has more rich and more poor. What’s your point aside from being an asshole!!!! Your the type of guy who if out of college took a public sector job, wold be bitching the other way. Just a whining hypocrite…..
      4 yrs and I’m moving out of state w what’s left of my pension.


  3. Posted by George on June 20, 2016 at 4:42 pm

    How do you think this will be handled in the gubernatorial election?

    New Jersey gubernatorial election, 2017,_2017

    The current system was probably workable when Whitman left office in 01. The problem is all the money flushed down the Iraqistan hole. I predict people will wish they could have those trillions back.


    (fee only)
    Retirement Planning Columnist For The Chief-Civil Service Leader

    277 Broadway, Suite 1506
    New York, NY 10007
    Telephone: (732) 536-9472


    The cost of operating an investment fund is expressed in “basis points”(bp), with one bp point equal to one hundredth of one percent (0.0001). For the fiscal year ended June 30, 2010 it cost the State of New Jersey eight bp to operate its Defined Benefit Pension System. This equates to $80.00 for each $100,000 under management. It’s important to keep the costs of operating the System to a minimum so that more money will be available for other government programs. Eight bp is de minimis cost.
    The same logic applies to our Defined Contribution Pension System where the operating cost is paid, not by the public sector employer but, by the public sector worker-investor. It’s extremely important to keep the costs of operating this personal investment portfolio to a minimum so that more money will be available during retirement.
    This voluntary/supplemental Defined Contribution pension plan is for State employees. During its first 25 years the Plan’s investment lineup consisted of four investment funds managed by the Division of Investment. The Division charges the worker the same eight bp it pays to operate the State’s multi-billion dollar Defined Benefit Pension System. This protective shell, encasing the worker-investor’s 457(b) account, was purposefully destroyed on January 2, 2006 when each of the four State-managed funds were summarily closed to future contributions and replaced with 23 commission-based Prudential funds.
    Moreover, Prudential was hired to handle two key Plan functions: Plan Administration and Plan Investment Provider which, heretofore, were handled by the New Jersey Division of Pensions and Benefits and the New Jersey Division of Investment, respectively. Both agencies are divisions of the New Jersey Department of the Treasury. Prudential is just one of 12 providers listed on the website of the Department of Community Affairs–Division of Local Government Services at: ICMA-RC is the only one that is not commission-based.
    Do you have any idea how the costs associated with investing impacts the growth of your 457(b)/403(b) retirement-investment account? Example: For 40 years Bob and Rob contribute to the State’s 457(b) Plan. Their first year salary is $30,000 with annual increases of 3 percent. 10 percent of their salary is invested in the Plan each year. They each earn an 8 percent return, before costs. At the end of 40 years Bob has an account balance of $1.1 million while Rob’s account balance is $700,000. Why the massive difference? Bob invested his money in the four State-managed funds at a cost of eight bp or $80.00 per $100,000 of account value while Rob was forced to invest his money with Prudential at a cost of 220 bp or $2200.00 per $100,000 of account value. In other words, after paying his costs, Bob’s net investment return was reduced to 7.92 percent (800 bp minus 8 bp) while, after paying his costs, Rob’s net investment return was reduced to 5.80 percent (800 bp minus 220 bp).
    The sole intent of these fundamental changes was to compel the worker-investor to buy commission-based Prudential funds. Recognizing that it’s the worker-investor, not the State (taxpayer), that makes the investment, pays all associated costs of acquiring and maintaining the investment and assumes all investment risk, it is the height of arrogance and wrongdoing for the State to sanction the sale of commission-based investments to its employees. Why, after 25 years of operating the Plan at de minimis cost, did the State see fit to place Prudential’s profit goals ahead of the financial security goals of its workers? Why, after 25 years of operating the Plan at de minimis cost, did the State decide to contribute to Prudential’s profit margin on the backs of its own workers? It is just stunning that at a time when fees paid by the worker-investor are under intense scrutiny the Trustees would have the unmitigated gall to replace the four de minimis cost funds with 23 commission-based ones.
    If the Trustees’ objective was to expand the investment lineup all additional funds should have been of the de minimis cost variety. Why is the State’s contempt for its workers exhibited with such gusto? Such bedrock changes represent a colossal breach of fiduciary responsibility on the part of the State and must be rejected.
    COUNTY, MUNICIPAL, SCHOOL DISTRICT AND PUBLIC AUTHORITY DEFERRED COMPENSATION 457(b) PLANS While investment in commission-based funds is comparatively new to State workers, it has flourished on the county, municipal, school district and public authority level for more than 30 years. For more than 30 years “Rob” has been severely mauled by the commission-based 457(b) sales shark.
    This Defined Contribution pension plan is the State-administered 403(b) Plan for employees of public school districts and higher education. It is also available to all other public workers on an after-tax basis. Since its inception in 1963 it has offered just one investment option, a common stock fund. It’s hard to comprehend how such glaring negligence can continue, unchecked, for almost half a century. Such flagrant breach of fiduciary responsibility on the part of the SACT Trustees is the only reason why each of the 565 school districts have farmed out their own, high pressured, commission-based 403(b) plan to insurance companies and mutual funds. For nearly 50 years the SACT, with its solitary investment option, has been the commission-based 403(b) sales shark’s most cherished and reliable ally. While it’s utter nonsense for each of the 565 school districts to sponsor their own 403(b) plan, until the SACT Trustees adopt a diversified investment lineup, employees of school districts and higher education will continue to avoid the SACT. Unfortunately, they will also continue to be severely mauled by the high pressured, commission-based 403(b) investment companies that have been, since 1963, sanctioned by their employing school districts. 565 high pressured, commission-based 403(b) plans when a State-administered 403(b) Plan has been available for nearly half a century. A colossal breach of fiduciary duty.
    For nearly 50 years New Jersey has been the national poster-child for the sale of high pressured, commission-based investment funds to its public workers.
    1. The same high fiduciary standards that apply to the operation of the Defined Benefit Pension System must also apply, with equal vigor, to the Defined Contribution Pension System to which employees of state, county, municipal governments, public authorities and school districts invest in.
    To that end the Defined Contribution Pension System should also be administered by the New Jersey Division of Pensions and Benefits with the New Jersey Division of Investment being the System’s Investment Provider.
    This includes mandatory Defined Contribution pension plans funded by both employer (taxpayer) and employee contributions; i.e., the Alternate Benefit Program and the Defined Contribution Retirement Program as well as supplemental Defined Contribution pension plans funded solely by the voluntary salary reductions of workers under sections 457(b) and 403(b) of the Internal Revenue Code. The State (taxpayer) should charge the worker-investor the same amount it pays to operate the State’s Defined Benefit Pension System, currently eight basis points.
    2. If it is sound public policy for all public employees (state, county, municipal, public authority and school district) to belong to a single, State-administered, Defined Benefit Pension Plan, why do we have 21 counties, 565 municipalities and 565 school districts farming out their own high pressured, commission-based 457(b) plan to insurance companies and mutual funds? 1151 high pressured, commission-based 457(b) plans when a State-administered 457(b) Plan has been available for more than 30 years. A colossal breach of fiduciary duty.
    Additionally, why do we also have 565 school districts farming out their own high pressured, commission-based 403(b) plan to insurance companies and mutual funds? (School districts and public institutions of higher education may sponsor 457(b) plans and 403(b) plans). 565 high pressured, commission-based 403(b) plans when a State-administered 403(b) plan (SACT) has been available for nearly 50 years. Another colossal breach of fiduciary duty.
    3. As soon as possible the administration and investment management functions of the New Jersey State Employees Deferred Compensation Plan shall revert back to the Division of Pensions and Benefits and the Division of Investment, respectively. Plan participation should be expanded to include the entire public employee universe (county, municipal, public authority, school district and public institutions of higher education). See: New York State Deferred Compensation Plan at:
    The Plan’s four State-managed investment funds represent just a beginning to a well diversified investment lineup. Improvements are urgently needed. See: Deferred Compensation Plan of the City of New York at:
    The SACT must offer more than a solitary common stock fund. See: Deferred Compensation Plan of the City of New York at: :
    See: North Carolina public school districts’ 403(b) Plan at:



  5. Posted by Anonymous on June 20, 2016 at 5:12 pm

    One thing is apparent, the pensions lasted longer than tough love did.


  6. Posted by Eric on June 20, 2016 at 6:24 pm

    What happened to Tough Love? I hope nothing awful took place. I miss her comments, even if people did not agree with her, they should respect her insight.


    • Best I could tell the last TL comment was around 4/18/16 and nothing since.
      Hope nothing happened and do miss her.


      • You guys are in the minority…..her constant regurgitating the same old pablam was hardly “insightful’, nor was she respectful and she won’t be missed…..perhaps the guys with the nets in the white suits finally got her back where she belongs.


      • Posted by Anonymous on June 20, 2016 at 7:54 pm

        Hmm you said her interesting, up address Mary Pat – LOL!


      • Posted by Anonymous on June 22, 2016 at 10:06 am

        I think she thought you (john) thought more like she did (public workers all have it so great) rather than being a fair moderator. Outside of this issue, which seemed to rule her very existence, she seemed like a good person. Maybe she needed a break from the site.


  7. Posted by Anonymous on June 20, 2016 at 9:05 pm

    Still alive and kickin’.

    Tough Love Says:
    June 6, 2016 at 4:47 pm

    ” insatiably greedy Public Sector Unions”

    “major reductions in the pension accrual rate for the future service of all CURRENT workers.”

    “extraordinarily rich pension formulas”

    “the extremely generous “provisions”

    “VERY young full/unreduced retirement ages”

    “COLA increases unheard of in Private Sector pensions”

    “overall reduction in the “value” of pensions granted (all CURRENT workers) by 50+% is ABSOLUTELY justifiable”


  8. Posted by Eric on June 20, 2016 at 9:44 pm

    Very good detective work.


  9. Posted by Sean on June 21, 2016 at 11:30 pm

    “One thing is apparent, the pensions lasted longer than tough love did.”

    I think time will prove that to be wishful thinking on your part.

    I too saw TL’s posts on some other blogs recently, and was glad to see she was still around, as I had been wondering as well when I didn’t see any reponses from her on this blog for awhile.

    I myself kind of went “off the grid” as well for awhile too, not that anyone “missed”
    me. : )

    Can’t speak for TL, but I quit posting here until now for a number of reasons, the main one being that, as a resident of Illinois, I have been too busy following the happenings in the land where the Governors make the license plates. Things in Chicago, and Illinois, are quickly coming to a point of critical mass.

    That said, I do READ this blog every day because I think this blog and Mary Pat Campbell’s are among the best around (kudos to John and MPC). I also very much enjoy the comments of all, even those I do not agree with. To me, I always felt that the back and forth between Tough Love and Smooth Moderation Douglas was the verbal equivalent of watching a tennis match between Bjorn Borg and John McEnroe: Sometimes exhausting, but usually very entertaining. For those who bash TL or SMD, I think you miss the bigger point. Differences of opinion are very healthy and create much-needed balance.

    Another reason I took a break from posting is that sometimes I just get to the point where I think, “Enough arguing already. No one is going to change their viewpoint, and time will tell the ultimate outcome anyway, so let’s place our bets and see what happens.“

    I sometimes think that people take too much comfort in “winning an argument,” as if bashing someone like TL will change the outcome. It won’t.

    What would the difference be if TL had never posted a single thing on a blog, yet pensions went bust, and every retiree took a painful cut to their benefits? Would it really matter?

    Anyway, as a person who trades the markets, I try to look at all of the reliable information I can get my hands on, then place a trade based on that information.

    If I were looking at the pension situation as a “market,” my conclusion would be that I would not be on the long side. There are simply far too many forces converging upon these pensions and creating a perfect storm. About the only thing that can help would be a booming economy, and that is not going to happen soon enough.

    Some of the factors I see:

    1. corruption and ineptitude of those running the funds
    2. corruption and ineptitude of union leaders
    3. corruption and ineptitude of those assigned to assess the true liabilities
    4. zero and negative interest rate policies
    5. eroding tax base
    6. mobility of wealthy taxpayers (freedom to flee)
    7. 10,000 baby boomers retiring daily
    8. Automation in the workplace
    9. Generation Xers and Millennials ability/willingness to pay
    10. Diminishing ratio of actives paying in/retirees taking out

    There are certainly more than these.

    One other thing, if I may… I followed the ruling on COLAs in NJ as it unfolded and I must say, I found it all to be very bizarre. No matter which side you are on, I think the reasoning behind it, the whole “understanding of the legislature at the time” nonsense, is a very frightening and foreboding sign of what these people are capable of. As far as pensions, I’m not sure what difference it would make, but the implications are truly frightening. My two cents.


  10. Posted by S Moderation Douglas on June 22, 2016 at 1:54 pm

    I have not been posting nearly as much lately either, Sean. There’s a reason for that. It’s safe to say, although a little scary, that Tough Love is my “reason for being”. Reason for being on the blogs, that is. I never gave much thought one way or the other about pensions (Except my own)
    At the beginning of the recession, I was reading an article on line about the huge losses for CalPERS and happened to scroll down to the comments section. Obviously, a lot of people are pissed off at government in general and government workers in particular, and specifically about government pensions.

    And from much of what I was reading, I couldn’t blame them.


    Much of what I was reading was just not true.

    Early on , TL was asserting that public workers did not deserve pensions because they now make as much or more in wages than the private sector. That didn’t seem true in my experience, but my experience is just anecdotal. So I looked it up. Fortunately there had just been several major studies which all agreed on the underpayment of state and local workers. The Biggs study soon followed, which agreed on the lower wages, but introduced the concept of discounting pension values using a risk free rate. Then it got more complicated. No need to go there again.

    Then there was the ubiquitous claim that in 1999, California workers got a “50 percent increase in pensions”. My pension started at over $40,000. If it had increased to $60,000 (it didn’t), I could well understand taxpayers being pissed. That’s why I think it’s not time wasted posting on these blogs. (And thank you again, John, for that opportunity.)

    TL was one of those who remarked on the fifty percent increase. When I pointed out the error, she at least recognized the mistake, and (somewhat) conceded the point:

    TL: “the increased pensions (whether 50% or, as you say, somewhat less)”

    but called it an unimportant “detail”.

    Sorry, but Moderation says that if numerous bloggers are repeating the same incorrect “details”, that has a huge negative effect on public opinion.

    Like many other bloggers, TL constantly stated as fact things that were just not so. She remarked once that NO private sector doctors had DB pensions or retiree healthcare. I posted a link to a Kaiser page with a description of a fairly generous pension and retiree healthcare for employees, their children, AND their parents. On building NJ roads, she stated they were built by private sector workers who made much less than public workers, and ABSOLUTELY didn’t have DB pensions.



    Wrong again.
    In what was apparently the last straw:

    Posted by Tough Love on April 16, 2016 at 5:02 pm

    “The groups impacted by MPRA are FAR FAR different than Public Sector workers, where pensions are so absurdly generous (and so fraudulently obtained from Union-BOUGHT Elected Officials) that they were NEVER justifiable ….and SHOULD BE materially reduced.
    These workers have run-of-the-mill pensions, clearly very modest (and MULTIPLES LESS) than those granted Public Sector workers.”
    After being shown clearly incorrect about the doctors, the roadbuilders, and several other clearly documented errors, why on Earth would any logical person make such a statement without fifteen minutes of research?

    It appears that public and private truck drivers in NJ make similar cash wages. (There is a much wider salary range in the private sector. ) According to news articles and calculations, public pensions are about $2,500 a month after 30 years. Private pensions are reported as $3,600.

    At age age 60, no amount of voodoo math would cause me to opt for the $2,500 pension, even if it were COLA enhanced.

    And yet…

    There was math…

    Based on assumptions…

    TL: “Earth to SMD, examples REQUIRE “assumptions”.

    TL: “You do NOT need to know the salary …..period ….. no matter how many time you assert otherwise.”


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