The New Jersey Teachers’ Pension and Annuity Fund (TPAF) is abysmally funded which necessitates a certain amount of lying so as to keep contribution amounts down and the people who might make trouble reasonably quiescent. One of the more pernicious machinations the actuarial profession has condoned is asset smoothing which in the case of the July 1, 2016 TPAF actuarial valuation means pretending to have $27,169,758,348 in assets in the plan when you really* only have $23,732,571,086. Milliman brings this $3.4 billion into existence thusly:
Yes, they pretend that the trust will make 7.9% regardless of what actually happens (with a modest 20% adjustment in the differences that emerge). Drawing from calculations over the last few years shows that the actuarial values have consistently been much higher than the market values:
- July 1, 2012: 119.4%
- July 1, 2013: 113.4%
- July 1, 2014: 105.1%
- July 1, 2015: 107.5%
- July 1, 2016: 114.5%
This was not the original intention of asset smoothing but it is the current role this gimmick plays in the public plan world. What is most striking is that if you project the figures out using reasonable assumptions as to the increase in negative cash flows (something else to note) and $0 earnings (very possible per the footnote below*) this spreadsheet has you winding up no assets in the plan as of July 1, 2021 but the actuaries telling you there is $3.7 billion somewhere. Where exactly I guess will be left for the retirees to figure out.
* No, not really as there are all those Alternative Investments included whose purveyors make more in fees as the value of their products inflate – and they get to value those products themselves.