What Ed Donnelly Gets Wrong

Ed Donnelly is president of the New Jersey State Firefighters Mutual Benevolent Association who argues in an op-ed on njspotlight today in favor of Police and Firefighters managing their own pension system.

The state’s failure to meet its obligations and its willingness to give local employers a pass through “pension holidays” created a shortfall in the PFRS system of more than $11.1 billion. The state is on the hook for more than $2.7 billion and local employers owe $8.373 billion.

Shortfall numbers from the July 1, 2016 PFRS actuarial report and one of several points that Mr. Donnelly gets dangerously wrong.

1) Ethics

“This bill provides for a board to be appropriately trained in ethics (another alien concept in New Jersey) and investments.”

Who will be defining ethics here? Politicians who take legalized bribes to get into office or appointees who are often acolytes of these bribe-takers?

2) Investments

“[T]he board will also determine its investment policy, which may be different than the whims of the front office, which has paid exorbitant fees for terrible returns.”

If anything returns on investments have been suspiciously spectacular in this low-interest environment. Had a good chunk of pension money been in low-fee Money Market funds or CDs instead of hedge funds for the last ten years the total fund might now be valued at $50 billion instead of the $71 billion that is supposedly there.

3) Numbers

All official numbers designed primarily to keep contribution amounts ‘manageable’. The honest shortfall is in the $25 billion range.

4) Way Forward

“The bill does nothing to change the obligations of the employer and will determine contribution requirements in the same way they are determined today.”

Then S-3040 would indeed change nothing that matters to most people.

25 responses to this post.

  1. Posted by Anonymous on March 23, 2017 at 8:31 am

    You said,

    The honest liability is in the $25 billion range.

    Did you mean,

    The honest unfunded liability is in the $25 billion range.

    Reply

    • I did though it is especially difficult to value in NJ because the government can do anything, even cut accrued benefits, when the political climate allows so $11 billion might be the real number when that pension cap comes in.

      Reply

      • Posted by NY on March 23, 2017 at 9:32 am

        John — what do you mean by “cut accrued benefits when the politics permit…”?

        Reply

        • Posted by Anonymous on March 23, 2017 at 9:55 am

          I’d suspect it’ll be like his answer to you on your Steve Adubato grant funding question – we’ll just keep making it up as we go along.

          Reply

          • Posted by NY on March 24, 2017 at 10:54 am

            @S Moderation Douglas: I don’t know the answer; that’s a good point. I believe that if you work in NJ and live out-of-state your NJ-source labor-income is taxed by NJ. I don’t know whether this is also the case for NJ-source pension-income.

        • Like the COLA elimination. It was obviously a contractual obligation but since it wasn’t in the retirees checks yet and the state had control over enforcement it was sacrificed in exchange for Christie’s promise to ramp up contributions. I see demonizing of large pensions and the next cut will be a cap on pensions. I don’t rule out across the board cuts but it would be much harder to do if everybody was yelling and not only those getting over $50,000 per year. Of course this would be illegal in most of the rest of the world but NJ will justify it because of an emergency fiscal situation – which they create.

          Reply

          • Posted by George on March 23, 2017 at 3:46 pm

            “illegal in most of the rest of the world ”

            You might be surprised what is legal in most of the rest of the world.

          • Posted by NY on March 24, 2017 at 9:51 am

            @John: I don’t see what wouldn’t be legal about a de facto “pension cap”. No one doubts that the state has the power to tax income, and there’s ample precedent for different types of income being treated differently (e.g. capital gains preferential rate versus normal income). The state could just pass a law taxing public pensions at source at 90% (or whatever rate) with the first $50K (or whatever amount) exempt. There’s a demonstrable public purpose motivating this, so it would probably pass judicial review. Why do you think this wouldn’t be legal?

          • Employment contract law which is what I would recommend public employees explore rather than banging their heads against a rigged NJ judiciary.

            For example, if you work for a NJ government employer with the understanding of getting a pension of a defined amount and that amount gets changed retroactively you should have a case to bring to the DOL – not against the state but against that government employer who naively trusted that participation in the state retirement system was not without great risk. Imagine the DOL getting thousands of complaints – all justified. It worked for the Scientologists when the IRS threatened their tax status and they had a much shakier argument.

          • Posted by NY on March 24, 2017 at 10:18 am

            @John: I don’t get it. The state would argue something like this: “We clearly have the power to tax income; in 2016 we did so at max marginal rate of 8.97%. No one says we don’t have this power. Now, we propose to tax this special class of income at 90%, and to do it for a legitimate public purpose. So we’re meeting our contractual obligations to our valued civil servants, not retroactively changing anything in the agreed GROSS pensions amount, and they’re simply paying taxes, so their NET is lower. This is how income taxes work.”

          • And the NJSC would likely buy that line of reasoning if told to.

          • Posted by S Moderation Douglas on March 24, 2017 at 10:44 am

            “I see demonizing of large pensions and the next cut will be a cap on pensions.”

            What is a large pension in New Jersey?

            I can see the wisdom of the cap in California (for those hired after 2012). Pensionable income is capped at $108,000 (roughly)… The SS limit, or $140,000 for those not in Social Security.

            So the biggest pensions will be in the $100,000 range. Not the two, three, and, just recently $400,000 pensions that make the headlines and bring out the torches and pitchforks.

            It makes sense that a pension should provide security in retirement, not luxury. (Public pensions, that is. Private pensions can provide luxury up the wazoo.)

            Those most highly paid employees will not receive pensions based on the amount of pay over $108,000 (and their contributions will cease at that point) They can use their saved contributions to add the “luxury” to their retirement… If they choose. The word is, though, some of these higher level employees will demand higher salaries to compensate for the loss of pension income. Pay me now or pay me later.

          • Posted by S Moderation Douglas on March 24, 2017 at 10:51 am

            NY,

            I think, if the retiree moves out of state, the state can’t tax anything. Not even New Jersey. The retiree is taxed in the state of residence.

          • Posted by Anonymous on March 24, 2017 at 2:41 pm

            @NY seems to me your fixated on the ‘taxing’ of pension benefits when the goal is revenue (or expense reduction). Why couldn’t someone decide retiree’s have to contribute to their pension via a tiered contribution rate, small % for NJ and greater % for non-NJ residents?

          • Posted by NY on March 24, 2017 at 2:46 pm

            @Anonymous: Good point; I haven’t thought about an option like that. Or what about an “administrative measure” that ends direct-deposit of pensions. Checks will be available each week to collect in Trenton. That’s a long way to travel each week if you live in AZ,FL,…

          • Posted by Anonymous on March 24, 2017 at 3:54 pm

            @NY (at the risk of irritating animal activist) not to beat a dead horse but I’ve wondered what the intentions of c.78 out-of-State network provider/facility restrictions were and the motivation behind c.79 revising them. Not to open a can of worms but fishing season is close.

  2. Posted by steve on March 23, 2017 at 10:02 am

    Jimmy hoffa had a similar idea back in the day—look where( he or that) ended— or did it ?

    Reply

  3. The public parasites will eat themselves. They deserve ZERO. Pass the popcorn.

    Reply

    • Posted by Anonymous on March 23, 2017 at 5:33 pm

      Love you even with your pre-existing conditions!

      Reply

    • Posted by Anonymous on March 26, 2017 at 10:11 am

      Hey Java you got it part right, those Washington GOP parasites did a GREAT job eating each other on Friday, 0-1 Mr. President. Keep them executive orders flying off the golf tee!

      I often wondered why your handle isn’t Java Platinum if it’s good enough for the public’s health care coverage why not you?

      Reply

  4. Posted by MJ on March 25, 2017 at 10:51 am

    All of this talk for years and we are still stuck with the pension problem. It will be long after we are all gone,,

    Reply

  5. Posted by MJ on March 26, 2017 at 6:07 am

    John, I thought that the state was able to reform public contracts based on the dire financial straights of NJ…….all those downgrades, people moving elsewhere, bad business climate, AC falling apart at the seams, high unemployment and slow recovery from 2008 and Sandy…..where is the money coming from for the pensions and health care……it has to come from somewhere as far as I know everyone is getting their checks with little if any reductions…..

    Reply

  6. […] Phony actuarial numbers provide an illusion that system survival is not the priority. Instead…. […]

    Reply

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