In another propaganda assault against a question likely to be on the November ballot that, in part, would require state pension contributions to be deposited quarterly former New Jersey state treasurer Andrew Sidamon-Eristoff had a piece in njspotlight offering an alternative:
One possibility would be to withdraw SCR-184 and instead adopt a law that commits the state to making its annual normal contribution at the beginning of the state’s fiscal year in July. This would obviate the most serious objections to SCR-184 yet deliver a substantive and not entirely inappropriate victory to the unions.
Going on to explain:
The normal contribution is generally the amount that independent actuaries determine is sufficient to fund pension obligations that arose or “accrued” in the most recent valuation year, based upon a wide range of assumptions with respect to benefit levels, headcount, investment earnings, mortality, and so on. In simplistic terms, this is the amount due in relation to active employees’ service. Currently about $700 million a year for New Jersey, this amount is expected to remain fairly stable going forward.
What Mr. Sidamon-Eristoff proposes as a compromise is to make that $700 million Normal Cost contribution at the beginning of the plan year. He fails to mention three flaws in his reasoning as if he were preaching, not to the cognoscenti, but to the ignorati:
- There is no such thing as an ‘independent actuary’ where public plans are involved. All sides have an interest in low-ball numbers and actuaries use whatever means available to play along.
- An annual cost of $700 million for about 240 thousand active participants for whom the state is responsible comes to $3 thousand per person, a ludicrously understated amount considering the population [see item (1) above] as I discussed before.
- Among the Generally Accepted Actuarial Principles that public plan actuaries do use is the interest adjustment for when contributions are deposited. If you look at the valuation reports you will see an adjustment to the date of deposit – see page from JRS report line item F.6.(d). What this means is that if the machinations that develop a Normal Cost of $700 million now take into account that the deposit will not need to be adjusted for interest it reduces it to $650 million. There is less money put into the plan which is now on the hook for earning that 7.9%.