NJ Pension Lottery: Reporting Lies

In the maneuvering over another New Jersey sham budget nj.com reported:

But state Senate President Stephen Sweeney(D-Gloucster) and Assembly Speaker Vincent Prieto (D-Hudson) say they’re willing to play ball on what could have been a controversial component in budget talks: Christie’s desire to boost the public pension fund with proceeds from the state lottery.

“The governor wants to get two bills,” Prieto said Thursday. “I may give one of the two. I think that’s a nice average. If it were a baseball player, you’d be Hall of Fame right away.”

A gimmick that will partially mask the depth of the problem while lowering contributions which will lead to an earlier depletion of assets – but you people already knew that. The problem is that people who get their news from the Star Ledger and other mainstream media sources remain in the dark as obvious lies are allowed to to pollute the discussion unchallenged. For example:


.
“Following the lead of a number of private sector pension plans”??????

Unless you consider zero a number that was a lie.

What sponsors of private sector defined benefit plans are doing is raising their contribution levels (because PPA required it) , reducing coverage (on account of escalating PBGC premiums), and freezing benefit accruals (to catch up on funding).

Public plans in general and New Jersey in particular have no such motivations and they are allowed to lie with impunity about the ones they do have.

10 responses to this post.

  1. Posted by Larry Pollack on June 24, 2017 at 4:38 pm

    You were a bit harsh on calling on calling Christie’s statement a lie. While no one has transferred the value of future lottery proceeds, obviously, there have been some tricky contributions, like AT&T contributing its mobile subsidiary (retaining the right to buy it back), US Steel contributing timberland way back, and you might even say companies contributing their own stock or debt (not sure if anyone has done the latter).

    This isn’t to say I agree with the idea or like Christie (I certainly don’t), but I’d give him the benefit of the doubt that those kinds of transactions are what he was referring to, and then find other reasons to beat him up.

    By the way, it may also be a stretch to say that PPA raised required contribution levels, with the nutty 25 year averaging of discount rates. Maybe a little, but not much. I don’t think there’s been a single year since ppa was enacted where the rules applied as originally enacted, without some transition or subsequent legislative “relief.”

    I enjoy your blog — please keep it up.

    Larry On Sat, Jun 24, 2017 at 3:41 PM Burypensions Blog wrote:

    > burypensions posted: “In the maneuvering over another New Jersey sham > budget nj.com reported: But state Senate President Stephen > Sweeney(D-Gloucster) and Assembly Speaker Vincent Prieto (D-Hudson) say > they’re willing to play ball on what could have been a controversial > compon” >

    Reply

    • Thank you for the clarification and I appreciate the feedback. Just hit 400 followers and, pound for pound, the smartest people on the planet from what I’ve seen.

      The details of the lottery sale are sketchy as the impetus is to add another phantom asset (like POBs or those self-valued alternative investments) to get the ‘official’ funded ratio up while playing funding games that will wind up reducing overall contributions. I get that some private sector companies are selling assets to deposit the proceeds into their plan but if the NJ retirement system will have control over the lottery (making decisions as to how it’s run) that is like having a division of your ‘for-profit’ company being run within your pension plan. Not only smacks of prohibited transaction but there are also tax issues (pensions not paying any) that makes me think this type of arrangement would be illegal in the private sector. But, again, nobody seems to have checked out how this would work. I would suggest an IRS determination letter but that might be a two-year wait these days and NJ has less than a week.

      Reply

  2. Posted by Anonymous on June 24, 2017 at 8:41 pm

    This proposal could be benefical IF it prompts necessary reforms in the way of future service accrual and health care coverage reductions. Stakeholders must agree to substantial changes now or face the inevitable sooner than later!

    Reply

  3. Posted by Mike on June 24, 2017 at 9:15 pm

    Senate President Stephen Sweeney(D-Gloucster) is said to believe that taking the Lottery out of State hands and giving it to the pension plans will improve the State’s bond rating. Really, Senator? Wasn’t the Lottery propping up part of the State budget? Or maybe he believes that now the lottery revenue can be used twice.

    Reply

  4. Posted by boscoe on June 25, 2017 at 3:56 pm

    The bill number is S3312 (http://www.njleg.state.nj.us/2016/Bills/S3500/3312_I1.PDF)
    if anyone wants to wade through the 45 pages. The two most interesting provisions are, first, that the entire “Lottery Enterprise” is placed in a new Common Pension Fund L, although it will continue to be operated on a day-to-day basis by the Division of the State Lottery. This may obviate the need for future legislative appropriations and prevent the opportunity for future legislative meddling — other than coming back to revise the statute itself — because the pension contributions from the lottery will be made outside of the budget process, reversing current practice. Second, section 5 of the bill somewhat arbitrarily values the Lottery Enterprise at $13,525,000,000 based on “the independent valuation service provider engaged by the State.” This is the valuation that supposedly reduces the unfunded liabilities of the systems by that amount and will be reflected in lower future actuarial determined annual contributions. And those future lower contribution needs will “free up” funds to provide for the services the lottery currently provides in the state budget.

    And “poof,” there you have it, modern fiscal alchemy.

    Reply

  5. Posted by Anonymous on June 25, 2017 at 5:32 pm

    Now that summer is here why no place all the beaches into the pension and let the pension benefit from the sale of beach badges ,and just like the lottery mandate the towns maintain the those very beaches ….of course the towns would howl because that has been their own slush fund .I could think of 50 such gimmicks for the state to steal …

    Reply

  6. Posted by Anonymous on June 26, 2017 at 4:49 am

    One fact about this Lottery proposal (and it’s implications) seems to have escaped being fully reported.

    The proposal is for the lottery income to flow into the Plan for 30 years, starting at just under $1 Billion in year 1, and with the income increasing by somewhere between 1.2% and 1.6% annually over the 30 years.

    Additionally, the Present Value of that (slightly increasing) 30-year income stream has been estimated (by an independent firm) to be $13.5, that amount being the presumed addition to the pension Plan assets (hence increasing the receiving Plans’ funding ratios) upon approval of this proposal.

    But here’s the quirk…………

    Unlike most assets, that maintain or grow in value almost INDEFINITELY, this proposal calls for the Lottery to revert to the State at the end of 30 years……….. meaning that this $13.5 Million Asset doesn’t grow larger, but declines to ZERO at the end of the 30-th year……….. with that decrease down to zero (mostly heavily impacting the last 15 of the 30 year period*).

    What this means is that (unreported in any Article that I have seen) once this proposal gets past year 15 (and especially once past year 20) the beneficial impact of each year’s lottery income is … to a growing extent … OFFSET by annually having to write down the value of the underlying asset producing that income.

    * If the annual income stream was a LEVEL ANNUAL $1 Billion, the $13.5 would decreases in value starting in year 2, with a remaining-asset pattern similar to that of the remaining Principle on a 30 year home mortgage. In this case, because we are discounting a stream of annually INCREASING income the $13.5 Billion asset will actually INCREASE (although very slightly for about 4 years and then start to SLOWLY decrease, with there being very little change from the year one asset value of $13.5 Billion over the first 10 years. After year 10, the decline in asset value accelerates eventually to $0 at the end of the 30-th year.

    Reply

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