Doing Something (Nothing) on NJ Pensions

Richard F. Keevey, a former budget director and comptroller for New Jersey, was one of 35 people who spent seven months looking for ideas to make New Jersey affordable and noted the urgency:

There are no quick fixes for the state’s ongoing budget crisis, but the best place to begin is with the chronically underfunded pension system…New Jersey’s budget problems did not develop overnight, but action is needed now. The state needs a new budget strategy for today and the future. Delay is not an option.

There is one quick fix being conveniently ignored and delay is exactly the option taken with the key pension recommendations being proposed:

  1. Shift all new employees of state and local government (municipal, county and school districts), along with those employees not yet vested, from the current defined-benefit system to a so-called cash balance system (similar to a 401(k) but better for the employee). Such actions would be a major step toward addressing the long-term unfunded liability of these systems and also reduce local property taxes.
  2. Examine the state’s assets to determine those best suited for dedication to the pension funds. The state has approximately $30 billion in assets (infrastructure, land, buildings, and so forth) — not counting assets of the various state authorities, such as the New Jersey Water Supply Authority, the New Jersey Turnpike Authority, the South Jersey Port Corp. Perhaps those best suited for consideration are those assets that earn revenue.

The problems:

  1. New hires are younger which means any type of Defined Contribution plan* will not only remove their employee contributions from the pot that would pay current retirees but the value of their accruals could increase.
  2. If a state asset can generate income then why can’t it generate that income outside of the retirement system and then have the state deposit that income into the system?**

The quick fix is first to get everyone making money off of runaway taxes away from the table. For example, this commission consisted of people who, conservatively, have taken in $5 million from New Jersey taxpayers so far. What kind of ideas are they likely to come up with? Ones that do nothing to disturb their seats on the gravy train too much.

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.* A Cash Balance is a Defined Benefit Plan in the private sector with the benefit defined as a percentage of salary or a dollar figure and then funding dependent on what the actuaries come up with. Without specifics as to how benefits will be accrued and paid for one can only assume that this reform is really about putting in a Defined Contribution plan with the term ‘Cash Balance’ used incorrectly because of the negative connotations of the term ‘401(k)’.

** Because if the asset is titularly in the retirement system then, like with the lottery gimmick, the state can try to dupe everyone about the system’s actual funded status.

8 responses to this post.

  1. Posted by skip3house on September 10, 2018 at 12:15 pm

    ‘ What kind of ideas are they likely to come up with? Ones that do nothing to disturb their seats on the gravy train too much.’

    “September 8, 2018 at 10:31 pm

    Drop all elected/appointed/….. “

    Reply

  2. Posted by Tough Love on September 10, 2018 at 12:49 pm

    Your quote from Richard F. Keevey says VOLUMES …………. “The state needs a new budget strategy for today and the future. Delay is not an option.”

    Note the words “budget strategy” ?

    A budget strategy just ALLOCATES the “cost” of something (a purchase, a capital improvement, a pension or benefit promise) over time, but does NOT change the item’s actual “cost”.

    The ROOT CAUSE of NJ’s financial problems is because the pension & benefit problems are ludicrously generous and hence COST too much.

    Hence it’s the COST that needs to be addressed, not fiddling with “budgets”.

    Reply

    • Posted by PS Drone on September 10, 2018 at 1:12 pm

      Yeah, I love how the problem is always the “chronically underfunded pension plans” as opposed to the real problem: the chronically obscene level of pension and medical benefits.

      Reply

      • “…as opposed to the real problem: the chronically obscene level of pension and medical benefits.”
        So simple,yet so difficult for those who are on the “take” to understand. The good of the MANY outweigh the mega filthy rich pensions of the FEW (government) workers…

        Reply

        • Posted by Tough Love on September 12, 2018 at 8:48 am

          It’s NOT just the MEGA-rich pensions of a “few” Gov’t workers……….. it’s that Public Sector DB pension formulas & provisions (such as high formula-factors, very young retirement ages, and COLA increases) routinely grant EVERY Public Sector worker (at EVERY income level) pensions 3, 4, even 6 times greater in value upon retirement than those of comparably-situated Private Sector workers.

          Reply

  3. Posted by skip3house on September 10, 2018 at 1:11 pm

    What is the most valuable college major? The answer, according to a new in-depth study from Bankrate, is actuarial science.
    Hard to believe…….

    Reply

  4. Posted by Anonymous on September 10, 2018 at 3:25 pm

    That’s why a hard DBP freeze for ALL actives must include a retro cap on pensions for current and future retirees. In combination with the proposed health care coverage changes; this will help mitigate future budgetary strains relating to accrued benefits earned to date.

    Reply

  5. Posted by geo8rge on September 10, 2018 at 6:27 pm

    A cash balance plan is a defined benefit retirement plan that maintains hypothetical individual employee accounts like a defined contribution plan. The hypothetical nature of the individual accounts was crucial in the early adoption of such plans because it enabled conversion of traditional plans without declaring a plan termination.

    https://en.wikipedia.org/wiki/Cash_balance_plan

    Reply

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