S-3040: Question Remains: Who Pays the Tab?

Opinion: Heads They Win, Tails You Lose

Police and fire unions’ power grab sticks New Jersey’s taxpayers with the pension bill.

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That power grab is S-3040 which former New Jersey state treasurer Sidamon-Eristoff views as “demonstrably insane to give public employees unqualified power to set their own benefit levels and require that government employers (and taxpayers) pay the tab.”

One problem with that logic:

Public employees, through their de facto control of politicians, essentially do have unqualified power to set their own benefit levels. It’s only the payment part of that equation at issue since if New Jersey taxpayers were to get an annual tab of $15 billion (instead of the $6.8 billion they recently got which the state slashed to $4.25 billion) those benefit levels might be questioned.  As it is, an actuarial/political cabal has conspired to ridiculously understate contribution levels for public sector defined benefit plans through first gimmickry (that $6.8 billion number) and then arbitrary reduction (that $4.25 billion).

The question, if the unions get to pick their actuary, is which way that new actuary will go:

  1. $15 billion full cost of benefits accrued and accruing; or
  2. $3 billion with more games to justify no benefit cuts and even the return of COLAs.

If the former then the question remains, who pays?

If the latter, then it’s only a matter of time.

17 responses to this post.

  1. Posted by Anonymous on March 21, 2017 at 9:45 am

    I thought previous posts on this topic the opinion was this legislation did nothing to change c. 78 so is the ex- Treasurer confused OR??

    Reply

  2. You can bet there will be a constitutional challenge if all pension systems are not included in S-3040.

    Reply

  3. Posted by boscoe on March 21, 2017 at 1:19 pm

    First (referencing Anonymous above), this legislation most certainly goes beyond Chapter 78 to define an entirely new pension structure. Chapter 78 did not authorize the PFRS — or any other state pension system for that matter — to be taken from state management and authority and turned over to a new board of trustees of the pension system, controlled by members. Chapter 78 did not authorize the trustees to raise or lower benefits unless the funded ratio (however defined) hits 80 percent, which the PFRS has not achieved. This legislation removes the 80 percent requirement. Chapter 78 did not provide for withholding state aid from a municipal employer if that municipality does not pay the PFRS what the new board of trustees say is due and payable from that town.

    Former Treasurer Sidamon-Aristoff is absolutely correct in his assessment of this legislation as being a power grab by the police and fire unions, and cravenly bought into by the Legislature — as demonstrated both by the speed and the unanimous voting consent the bill is flying through the Legislature. If the unions were really only concerned with the level of investment returns being generated on PFRS assets, S-3040 could have set up a competitive investment experiment by simply allowing the PFRS board to invest their own assets, while leaving all other provisions of the PFRS law and Chapter 78 as is. Clearly that is not what is happening here. We’re seeing control of benefit levels and member contribution rates turned over to one group of public employees and no others.

    John Bury’s cynical analysis of the former Treasurer’s statement, combined with John’s single-minded focus on the systemic understatement of future liabilities (which I happen to agree with), makes it seem like it makes no difference whether S-3040 is enacted or not — because in the long run, the house of cards will collapse. That may or not be true, but it is not a reason to start the excavation with this ill-advised bill.

    Reply

    • Posted by Anonymous on March 21, 2017 at 1:33 pm

      Thanks boscoe, I say let S-3040 pass with the following changes; remove the w/h of municipal aide and repeal the applicable legislation that mandates local employer pension contributions and/or include local P&B expense in the 2% property tax cap. Then PFRS can control the $ however little trickles in…..

      Reply

    • Posted by Anonymous on March 21, 2017 at 7:25 pm

      boscoe, You are dead right.

      Giving Union Trustee investment control is bad enough. For example, what stops them from ramping up the risk and shooting for greater gains when they are backstopped by the taxpayers if the investments go bad?

      But giving the Union trustees control over benefit levels and when to reinstate COLAs is off the wall nuts.

      Legislators who support this are clearly in bed with these Unions.

      Reply

  4. Posted by Anonymous on March 21, 2017 at 9:37 pm

    The following provides a link to the former Treasurer Sidamon-Aristoff’s article referenced in boscoe earlier comment, a MUST-READ.

    http://www.njspotlight.com/stories/17/03/20/opinion-heads-they-win-tails-you-lose/

    Reply

    • Posted by Anonymous on March 22, 2017 at 6:06 am

      Ok I hate to bring up Trumputin but somebody is ‘spreading (fake) news’ JB and Eric say this laws does NOTHING yet boscoe and anon say differently. I guess it comes down to alternative facts just like all the varying actuarial assumptions – ‘sing, sing a song’s.

      Reply

  5. Posted by Anonymous on March 22, 2017 at 1:56 pm

    Wonder why these Billionaire weren’t part of NJ’s mass Exodus b/c of our high taxes?

    http://www.nj.com/news/index.ssf/2017/03/six_new_jersey_residents_named_to_forbes_billionai.html#incart_2box_nj-homepage-featured

    Reply

    • Posted by George on March 22, 2017 at 2:23 pm

      They seem to be in the same profession, Wall Street. So NJ may have a comparative advantage in that being close to NYC. My guess is Connecticut has the same advantages as NJ. NJ actually has certain nice qualities. NJ has 8 million people spread out much more evenly than New York City, so it has many of the advantages of a city but the feel of rural.

      Once upon a time the ring around NYC was a high-tech center comparable to Silicon Valley. Wha’happened? IBM Xerox Kodak Bell Labs ect. Up state NY is a sort of high-tech rust belt.

      Reply

  6. Posted by Mitch on March 22, 2017 at 5:39 pm

    If you are going to give Aristoff credence remember that the additional employee contributions mandated by Chapter 78 were not used to strengthen the system. They were used to lower the actuarial (fake) level of debt which lowered the amount contributed on the employer side. That’s on his watch.

    Reply

    • Posted by Anonymous on March 22, 2017 at 6:27 pm

      Mitch, And your point is what ?

      Is bringing up this accurate but completely unrelated fact to play down the accuracy and importance of the warning that Sidamon-Eristoff is alerting NJ’s Taxpayers to ?

      Reply

  7. Posted by friendofTR on March 22, 2017 at 8:23 pm

    I worked for a wealth planning firm … no wealthy person dies in NJ if they can avoid it … they flee to Florida which has no estate tax. That’s a fact Trumputin moron.

    Numbers don’t lie. Almost every pension fund is in trouble. Whether you want to pass those deficits onto your children or get out, choice is your’s.

    Me? I sold because I refuse to pay property taxes to these grifters. I save my money now for my own retirement rather than fund these over generous public pensions. Best thing I ever did. Not one public employee getting a dime out of me.

    CHOKE ON IT.

    Reply

    • Posted by Anonymous on March 22, 2017 at 8:42 pm

      Exactly, The problem isn’t the “funding” itself (that being simply a mechanism to allocate the cost of the promises over time), but the as you stated, “these over generous public pensions”.

      Reply

      • Posted by friendofTR on March 22, 2017 at 9:12 pm

        Thank you Anon 8:42. I’m not good with numbers or actuaries formulas, but I do understand basic math and see how unsustainable pension payouts are …2 + 2 does not equal 5 or 10 times the pension annual payout ., or as I suspect even 100X the original contributions. I keep it simple for my simple mind.

        Reply

    • Posted by Anonymous on March 24, 2017 at 12:46 pm

      Some public somewhere is getting something from you and all the rest of us……..

      Reply

  8. Posted by Eric on March 22, 2017 at 10:12 pm

    George:
    You can add Bell Labs’ parent corporation, Lucent Technologies, to your list regarding the high- tech “rust belt.” Many of my engineering friends lost everything on this seemingly low risk investment.
    Not since I have re-read the “Intelligent Investor”, with the update re.Lucent, did I discover how grossly incompetent management was of this one time tech “darling.”
    Eric

    Reply

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