s2810, introduced on November 14 and to be voted on today, would require New Jersey to pay its pension contributions on a quarterly basis by September 30, December 31, March 31, and June 30 of each year, beginning July 1, 2017.
The bill’s sponsor, State Senate President Steve Sweeney, had an opinion piece in njspotlight today claiming:
Making pension payments every three months — rather than at the end of the year — will ensure that the requisite contributions are made, not skipped. Today, New Jersey legislators will vote on bipartisan legislation to commit the state government to a schedule of quarterly pension payments that will provide fiscal stability to our underfunded pension system and save billions of dollars in future costs for state taxpayers.
Either Sweeney is willfully ignorant of pension funding or he believes his intended audience is since this bill will actually REDUCE the State’s pension contribution.
Current law says that contributions…
…shall be made in full each year to each system or fund in the manner and at the time provided by law. The contribution shall be computed by actuaries for each system or fund based on an annual valuation of the assets and liabilities of the system or fund pursuant to consistent and generally accepted actuarial standards and shall include the normal contribution and the unfunded accrued liability contribution. The State with regard to its obligations funded through the annual appropriations act shall be in compliance with this requirement provided the State makes a payment, to each State-administered retirement system or fund, of at least 1/7th of the full contribution, as computed by the actuaries, in the State fiscal year commencing July 1, 2011 and a payment in each subsequent fiscal year that increases by at least an additional 1/7th until payment of the full contribution is made in the seventh fiscal year and thereafter.
If a contribution becomes onerous either the legislature can pass another law with a lower fraction or the governor is free to skip any payment. S2810 would not change any of that but what it does do is reduce the amount that the state would have to put in.
Among the generally accepted actuarial standards that public plan actuaries do follow 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 a full year’s interest but rather for quarterly installments that total Normal Cost would reduce to about $680 million. There is less money put into the plan which is now on the hook for earning that 7.9%.