Reform the NJ Pension Reformers

New Jersey has the worst funded state retirement system in a country full of badly funded public retirement systems and yesterday’s Investment Council meeting provided a glaring example of why that dubious distinction is not going away.

As reported by njspotlight:

New Jersey has the nation’s worst-funded public-employee pension system, and in a bid to help put it on a firmer footing, state lawmakers last week overwhelmingly approved a bipartisan bill that calls on the state to begin making pension contributions on a quarterly basis. But the leaders of the board that oversees investment policy for the pension system are divided on whether lawmakers should be going even further to address the state’s pension-funding problem.

…..

[Adam] Liebtag, a leader of the Communications Workers of America labor union, said he would also like to see the payments themselves calculated using the actuarial assessments and not just the amounts set aside each year in the annual state budget. For example, the current state budget calls for a $1.9 billion state pension contribution, which is well below the close to $5 billion payment that actuaries have called for.

….

The governor has vetoed similar measures in the past, but legislative leaders say they expect him to sign this version due to several changes that they made. The new wrinkles include allowing the payments to be made at the end of each quarter of the fiscal year. That is intended to give the state more time to generate revenue to cover the payments, especially in the first two quarters when tax collections typically come in more slowly than they do at the end of the fiscal year. Another change would allow the pension system itself to cover any short-term borrowing costs that would be required if the state doesn’t have enough cash on hand to make any of the quarterly payments.

What this comes down to is a debate over whether the state should REDUCE its contributions on account of the actuarial adjustment for earlier deposits and the cost of borrowing.  The state would still get to pick their contribution by applying some arbitrary fraction to the already understated amounts that the actuaries develop and if even that turns out to be onerous they have the option to either ignore it entirely or borrow to pay for it.

Anyone who sees this as a real solution is not looking for a real solution.

25 responses to this post.

  1. In 1968 the State University and State Colleges did away with the DB pension approach in favor of the Defined Contribution system known as the Alternate Benefit Program (ABP). It’s unfortunate that all public employees were not mandated into the ABP.

    Reply

    • Posted by Anonymous on December 3, 2016 at 8:42 am

      The state pays the employer portion in the six pension funds, under NJABP, in accordance with IRS rules both the employee and employer contribution must be received by the state contracted providers within 5 days, so there aren’t any contribution shortfalls. Monies from pension sponsors are invested in long-term conservative investments because the payouts for lifetime income are fixed and guaranteed. Pension savings need to be protected, the Republicans have already begun through the courts to dismantle the new pension protections that take full effect April 1, 2016. These regulations are designed to protect retirement savers from excessive fees, bad financial advise and unethical/greedy financial advisors. Congress golden it’s campaign money from the financial services industry, therefore they bend to the will of their masters. The same Republican court intervention for the new overtime rules that were to take effect Dec.1, 2016. The working class needs to pay attention to what is done against them and by whom. Pay-to-play rules Congress and the state house in America, corruption is alive and well in this democracy.

      Reply

      • Posted by Anonymous on December 3, 2016 at 2:01 pm

        Are you kidding? At least at the Federal level, most of the Trump supporters would walk the plank into shark infested waters. Why, because Trump says it’s safe to do it. Blind ambition will be the rule of law…..

        Reply

        • Posted by Anonymous on December 3, 2016 at 3:08 pm

          No, I’m serious about attacks against labor reform. Trump’s overzealous supporters is a whole other emerging topic. They really think in this democracy he will not be criticized wrongly or rightly. They feel real comfortable threatening anyone who has an opposing view to their demigod. Lots of us are above “idol worshipping”, many of us are very aware of our constitutional right to free speech, the right to petition our government, including the Presidentvelect and his Cabinet. His Presidency isn’t trapped in a Board room at Trump Towers, it’s all the way live, straight up reality. This administration is going push constitutional boundaries and large portions of the populous will push back loud, direct and constant because that’s what we do.. Threatening folks can get one tangled in a law enforcement situation. Just get prepared for a war of words. The truth is morningstar available than anytime in history, watch how Trump and Co. are exposed by the internet and social media . “My God is a jealous God”. I’m so psyched about the next four years, the Constitution will be tested.

          Reply

          • Posted by Anonymous on December 3, 2016 at 3:53 pm

            I totally agree BUT it’s how the legislative actions will be interpreted by the soon to be conservative SCOTUS! Unconstitutional today can become constitutional tomorrow? Ultimately the majority of us, yes even electorial will overwhelmingly vote them out over the next 2 to 4 years. All that is done can be undone and redone, welcome demo(god)crazy…..

            Splash, woops there goes one Trump supporter taking a “safe” swim in the shark infested waters – LOL!

    • The ABP was a special case. The 401(k) had not been invented yet in 1969, but college professors already had a portable, multi-employer, defined contribution pension plan: TIAA. In fact, TIAA predates even Social Security.

      If Rutgers wanted to hire a professor who was teaching at Midwestern State University, he wouldn’t want to start over in NJ PERS at 0 years of service credit. So Rutgers had to offer TIAA.

      That caused a chain reaction. What if Rutgers Newark hired a professor from NJIT? What if NJIT hired a professor from Essex County College? So they made a clean sweep of it and put all new professors in TIAA.

      The ABP was not created to pioneer a DC pension. It was created specifically to join TIAA and solve these problems with college professors. If TIAA had been a multiemployer DB pension, then that’s what ABP would have been. It just happened that TIAA was a DC pension.

      Reply

      • Posted by skip3house on December 11, 2016 at 8:31 am

        “…. If TIAA had been a multiemployer DB pension, then that’s what ABP would have been. It just happened that TIAA was a DC pension…..”

        Sometimes, we just have to be plain lucky when no officials even ask..’What if…..?’

        Reply

        • The retirement feature of the ABP is the individual ownership of the personal investment account. What makes it portable is the willingness of those participating employers to pay into the account as the employee moves from one employer to another over a career of service. The employee enjoys full and immediate ownership (vesting) of the employer’s contribution because the employee owns the investment account. This is impossible to accomplish via a DB system where each succeeding employer has it own DB formula and vesting requirements.

          Reply

  2. Posted by skip3house on December 1, 2016 at 12:49 pm

    Same old make-believe with funny numbers. All I see are my memories of 8th grade arithmetic problem solving and less relevant BA Math degree here. ‘joellfrank’ is closest to a solution.
    ‘Retro’ all pensions to amount contributed each year and interest, by employer and worker. No funny stuff of defined benefits, or full credit for earlier years……..
    Just adjust ‘joellfrank’ thought to $$ actually paid by employer, not what was hoped for.

    Reply

    • Re: NJ Alternate Benefit Program (ABP)

      The contribution rates of 5 percent by the employee and 8 percent by the employer were established with the 1967 legislation establishing the ABP and have never been altered.

      Moreover, the public EMPLOYER has remitted its 8 percent rate in a timely fashion for the last 48 years. This great story is repeated in every state in the nation but only for the public higher education institutions and their employees.

      Why is this immediate and full funding method not recognized by the power brokers in this state? Why are they still trying to fill an eight ounce glass with sixteen ounces of water?

      JOEL L. FRANK
      PENSION COLUMNIST
      THE CHIEF-CIVIL SERVICE LEADER
      277 BROADWAY
      NEW YORK, NY 10007
      732-536-9472
      ROLLOVER@OPTONLINE.NET

      Reply

      • Posted by Anonymous on December 3, 2016 at 3:14 pm

        Oh Frank, you know the NJ pension monies were used as a budget hole plugged. The NJ Dept. of Investments is a scandalous political patronage pit for Wall St. consultants and investment firms. It loses millions, the is rewarded with excessive fees and bonuses, at the expense of NJ public employees.

        Reply

        • Anon:

          I don’t know what you are talking about. Would you please connect your response to the ABP?

          Reply

          • Posted by Anonymous on December 4, 2016 at 8:16 am

            The legislature at many time period could have transferred the other five state pensions to state approved providers, they did not because it would have eliminated access to a no cost budget hole plug. NJABP at any point could become a hybrid db/dc pension scheme protected from Governors using the accumulations instead of raising taxes. Providers contracted to provide retirements benefits are better regulated than the NJ Dept. of Investment who seem free to take unnecessary risk with pension monies that result in multi-million dollar losses, no one is held accountable. When pension providers have big losses class Acton suits have them in court explaining how they dropped the fiduciary ball, this usually tens up with a settlement and corrective action plan. The NJ Dept of Investment lose millions and consultants get bonuses.

          • THE ABP AND THE PENSION SYSTEM HAVE NOTHING IN COMMON. ONE IS AN INDIVIDUAL INVESTMENT ACCOUNT AND THE OTHER IS A DEFINED BENEFIT PENSION PROMISE. IN 1967 THE STATE MADE A COMMITMENT TO CONTRIBUTE 8 PERCENT OF SALARY AND HAS NEVER RENEGED ON ITS AGREEMENT. IT HAS NEVER SOUGHT LEGISLATIVE RELIEF. THIS IS THE WAY GROWN-UPS BEHAVE WHEN THEY ENTER INTO A LEGALLY BINDING AGREEMENT. RESULT: A 100 PERCENT FULLY FUNDED OBLIGATION EACH AND EVERY PAY DAY FOR 48 YEARS.

  3. Posted by George on December 1, 2016 at 4:19 pm

    So how does this get resolved? Gas tax was a one off. Now what?

    Reply

    • So how does this get resolved? Gas tax was a one off. Now what?
      #1- new telephone “tax”
      #2- new sewer “tax”
      #3- new water “tax”
      #4- new gas “tax”
      #5- new electricity “tax”
      #6- other new/novel “tax”
      …etc…
      Te list is infinite…..

      Reply

  4. Posted by Anonymous on December 3, 2016 at 2:02 pm

    Hey John, last week I thought you suggested something was coming out of the crumbling Golden Done on P&B reform legislation- any update?

    Reply

  5. Posted by George on December 4, 2016 at 1:09 pm

    Mayor of Dallas is suggesting a new approach but is sparse on details.

    City’s plan to save Dallas Police and Fire Pension Fund will target those who got rich from the system

    Base benefits will be protected. And the city’s general philosophy is that those who profited from the overly generous benefits will have to take part in the banquet of consequences.

    http://www.dallasnews.com/news/dallas-city-hall/2016/12/03/citys-plan-save-dallas-police-fire-pension-fund-will-target-got-rich-system

    Reply

    • Posted by skip3house on December 4, 2016 at 1:21 pm

      George/Joel Good common sense thought. Pay about only pension amount logical based on contributions, not defined benefits….as Joel agrees with what makes ABP successful

      Reply

  6. Posted by Anonymous on December 4, 2016 at 9:03 pm

    Joel NJABP is 401a pooled group annuity and 403b can function as a hybrid but the 401a payout mirrors the payout of a defined benefit plan. Everything is dependent on the participant, annuitization is not mandatory. What’s with the CAPS? Each provider contract is different but the payout options must include lifetime income which is provided by an insurance company. The choice of payout is up to the employee.

    Reply

  7. May I suggest you brush up on your understanding of the differences of Defined Contribution vs. Defined Benefit.

    Reply

    • Posted by Anonymous on December 5, 2016 at 7:10 am

      I understand because I was a participant for over 32 years and a phased annuities for five. The plan changed more investment and payout options, also more providers. Think hybrid plans with features of both dc/db best practices.

      Reply

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