Madness? This Is New Jersey!

In reaction to the announcement on Thursday by New Jersey’s acting state treasurer Elizabeth Maher Muolothat that she will increase the expected rate of return for the state’s struggling public pension system from 7% to 7.5%, “then lower it again over time” Joe Mysack, editor of Bloomberg Brief and author of The Encyclopedia of Municipal Bonds who has been covering the muni beat since 1981, tweeted:

Which led me to wonder when a public plan last raised their funding interest rate and, considering the inflated rates public plans have been using conflicting with real world returns, whether this would be the last hike in our lifetimes.

On the first question, in the case of New Jersey, it was 1992 when, facing a budget shortfall, Governor Jim Florio pushed through the Pension Revaluation Act with unanimous support in the legislature, reducing taxpayer contributions to the public retirement plans by $1.5 billion by lifting the projected rate of return on the fund’s investments to 8.75% from 7%. On the second question, if we keep New Jersey in the mix, we could have another one next year.

10 responses to this post.

  1. Posted by PS Drone on March 4, 2018 at 10:45 pm

    Popular delusions and the madness of the public sector. Gotta love it. Kind of like Congress ignoring the fact that the US Govt. is $21 Trillion in debt and that SS and Medicare are dead men walking. What, me worry?


  2. Posted by Analyst on March 4, 2018 at 11:04 pm

    Much ado about nothing . This s a little like arguing about depreciation schedules .the rate of return is lower than what is used by corporate plans . The problem is it is also used as the discount t rate . So what . That rate is used to calculate the ARC . The fight should be over how much the state is willing to contribute regardless of the method used to calculate . Then the question is can it be invested properly at the lowest expense so that the promises can be paid . That can only be done by being transparent and release expected annual benefits , expected annual contributions . Then , any adjustments needed to future liabilities ( and they have assumptions built in about salary increases and inflation ) can then be negotiated. We are all entitled to our opinions , but not to our own facts . Too many smart people are focused on the wrong things . Well paid wall streeters are too busy in their own silos to focus on the real problem . Ironically , New Jersey probably has the most wall streeters , PhDs and financial professionals . Be smart New Jersey !


    • Posted by Tough Love on March 4, 2018 at 11:24 pm

      “negotiated” ….. with a Public Sector Union ?

      For every $100 in reduced pensions undeniably necessary, I’d be amazed if the Unions offered changes worth more than $5.

      To be blunt, the NECESSARY changes as determined by what NJ’s Taxpayers can reasonably “afford” must be forced upon the Unions.


  3. Posted by Tough Love on March 4, 2018 at 11:17 pm

    I’m Ok with the increase…………..

    NJ’s Plan’s are going to fail (no matter what rate is assumed), so Taxpayer’s should enjoy the lower taxes as long as we can. We can always move away if NJ goes to a pay-as-you go basis (with a promise …. or Court order ….. to pay the full amount of the ludicrous pensions that have been “promised”).

    “Funding” is just accounting and the timing of in what year(s) we pay for the ludicrous promises that have been made by our Union-BOUGHT Elected Officials. The promises themselves have a fixed “cost”. It’s just that we don’t know what that will be until the last beneficiary is dead.

    The REAL issue is addressing the now ludicrously excessive “BENEFITS” (not the “funding” thereof)

    (1) the value of future service accruals needs to be reduced by AT LEAST 50% for the future service of all CURRENT workers.

    (2) Past service accruals may need to be reduced as well …. Taxpayers should be on the hook for only so much, so the Plan participants better pray for a decades-long booming Stock market (that nobody expects).

    The more likely scenario is the Actives and Retirees fighting for what’s left.


  4. Posted by skip3house on March 5, 2018 at 5:41 am

    You are all correct in your views. NJ is part of the ‘Wizard of OZ (we are not in NJ anymore, but a fairy tale).’
    No sense throwing meaningless numbers around,….and little hope citizens will care enough to use a system like I&R to bring this make-believe NJ State Government to its senses. A long road from plain ignorance to actual solutions.


  5. FWIW, you can embed tweets directly into your blog posts.

    It would look better than what it seems you’re doing, where it looks like you’re actually printing it out on paper and scanning it in. Let’s see if I can do this in a comment, actually.


  6. Posted by NJ2AZ on March 5, 2018 at 10:40 am

    you have to figure they already know the pensions can’t be fixed, so if they can avoid sending any additional money why wouldn’t they. may as well accelerate the day of reckoning.


  7. Posted by geo8rge on March 5, 2018 at 3:39 pm

    Maybe they should just put whatever they are going to put into the pension scheme, and then ‘back out’ the required rate of return to make everything balance. That rate of return might actually shock people.


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