Pension War in NJ

NJTV’s coverage of a forum on pension funding that was held at Monmouth University on Friday adopted a military theme:
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The battle plan is to divert new hires and those with under five years of service out of the traditional defined-benefit plan and into a proposed defined-contribution retirement system which, if you were to review state data of active members, would be like going against an M1A2 SEP with buckshot.

As of June 30, 2018 there were 400,000 active participants with total annual salaries of $25 billion ($62,500 average) in the system. Of that group 84,000 were hired in 2014 and later and have annual salaries of $3.7 billion ($44,000 average).

According to actuarial valaution data as of June 30, 2017 public employees made $2 billion in contributions (8% of salaries) that year while taxpayers paid in $3.6 billion (14.5% of salaries) with a large chunk of the taxpayer portion theoretically going to reduce the shortfall from prior years. Annual payouts were $10.4 billion then and are likely $11 billion now.

If you take those newer (and younger) active employees out of the defined-benefit system you will also take out the $300 million (8% of $3.7 billion) that those employees are having withheld from their salaries now and, if the amount of taxpayer contributions that they will get under the new defined-contribution setup is large enough, it could wind up costing taxpayers even more.

If there were ever any impartial actuaries at these forums it might come out that these political solutions are not worth fighting for if you are a taxpayer (or fighting against if you are a new public employee).

 

38 responses to this post.

  1. Posted by NJ2AZ on October 1, 2018 at 1:44 pm

    i don’t see why some new(ish) hire hasn’t already sued to try and get out of having to participate in the pension scheme.

    considering all the divestment nonsense nowadays, you could probably use the same arguments they used in Janus

    Reply

  2. Posted by Tough Love on October 1, 2018 at 2:28 pm

    Quoting ………….

    “If you take those newer (and younger) active employees out of the defined-benefit system you will also take out the $300 million (8% of $3.7 billion) that those employees are having withheld from their salaries now and, if the amount of taxpayer contributions that they will get under the new defined-contribution setup is large enough, it could wind up costing taxpayers even more.

    If there were ever any impartial actuaries at these forums it might come out that these political solutions are not worth fighting for if you are a taxpayer (or fighting against if you are a new public employee).”

    —————————————–

    John, As an actuary, you should know better.

    Of course these change (actually MUCH MORE ……… such as moving workers at ALL service durations into DC Plans and hard freezing the DB Plans for EVERYONE) are worth “fighting for”.

    Why, because once those employees are moved to a DC Plan, the Taxpayers will never be on the hook for another dime with respect to each future year’s annual Taxpayer contributions, while the 8% (INCLUDING the investment earnings thereon) that these workers are now contributing to their DB Plans likely pays for only 10% to 20% of the total cost of their pensions …… with the remaining 80% to 90% being (on average) MUCH MORE that a level annual 8% of pay …… a cost the Taxpayers will ultimately get stuck with (unless the promised benefits are defaulted upon).

    Reply

  3. Posted by skip3house on October 1, 2018 at 3:18 pm

    An attempt to bring NJ Pensions down toEarth. About ten times more is needed, though.
    The $150Billion unfunded is not a real number in anyone’s experience. Per TL ‘leanings’, do away with this ‘unfunded’ and use only existing funds toward any solution(s).

    Reply

  4. Posted by NJ2AZ on October 1, 2018 at 5:23 pm

    If i’m reading correctly, the contribution rate (for teachers at least) was 5.5% of salary and will eventually get to 7.5%? good lord. i agree with TL, benefit reduction is a necessary part of any solution.

    out here its 11.3% (employer and employee each) taken out for pensions, and we’re still underfunded (though not nearly as bad as NJ)

    Reply

    • Posted by NJ2AZ on October 1, 2018 at 5:27 pm

      Edit: the rates are up to 11.5% this year and can change annually as the plan actuaries see fit.

      Reply

      • Posted by Tough Love on October 1, 2018 at 10:14 pm

        Any Public Sector Plan actuary that wants to keep the engagement would NEVER recommend an employEE contribution rate that, given the ludicrously generosity of these Plans, is “fair” to Taxpayers.

        Reply

  5. Posted by Coco on October 1, 2018 at 6:48 pm

    John I thought the proposal for the new/under 5 years was to put them in a hybrid plan. Up to $40,000 of earnings was pensionable and on top of that was 401k style plan. If that is the case they will be paying the same amount towards pension but getting less. Am I wrong about that ?

    Reply

    • Without any information about what this new Defined Contribution setup would provide to employees as a percentage of salary there is nothing to discuss. For now it’s all about transferring investment risk and that might not even apply if they switch to a Cash Balance with guaranteed and defined returns.

      Reply

  6. 2 years or so ago I suggested a federal “bail-out” (i.e. LOAN) for $150B at the then federal funds rate + .05%. Yes, the taxpayers of all states will be on the hook, but the possibility of default is remote. The Feds can always take the minimum payment due by reducing the aid it gives each year. It’s liberal, it’s left, but its a great idea. The less discretionary money the state has the better!

    Reply

    • Posted by Tough Love on October 1, 2018 at 10:19 pm

      It’s a lousy idea.

      The 50% to 75% share of Public Sector pension promises that assuredly would NOT have been granted in the absence of the Publuc-Sector-Union/Elected-Official COLLUSION ……… with the former BUYING the favorable votes of the latter with BRIBES disguises as campaign contributions ……….. should NOT be paid.

      No “bailout”, no “loan” …….. just NOT paid.

      Reply

      • Posted by Anonymous on October 2, 2018 at 9:00 am

        Yeah and no Fed bailout for farmers b/c of Trump’s tariffs . No means no and for ALL self interests not just some. Let’s not forgot ALL those Federally taxpayer funded pensions. Exceptions will get you nowhere, except justification for your self intetest!

        Reply

        • Posted by Tough Love on October 2, 2018 at 9:15 am

          I agree ………… there is no reason to bail out the farmers due to the tariff issue …… although Trump has NO IDEA what he is doing with respect to Global trade.

          And Federal DB pensions (for almost all still working ……. hired in 1987 and later)for all but law enforcement have a per-year of service “formula-factor” of only 1% of final average salary ……….. 1/3 to 1/2 of that typical of State & Local Pension Plans. That NOT overly generous.

          Reply

    • Posted by geo8rge on October 2, 2018 at 5:37 am

      “the possibility of default is remote. ” Why is the possibility of default remote?

      Reply

      • Posted by Tough Love on October 2, 2018 at 7:41 am

        I would classify Now Retired Pat’s statement (“Yes, the taxpayers of all states will be on the hook, but the possibility of default is remote.”) as …….. an outcome unacceptable for him to even contemplate.

        Reply

    • “The Feds can always take the minimum payment due by reducing the aid it gives each year.”

      So cut Social Security, Medicare and Medicaid for those who have nothing but, to pay for pensions of those who have them in addition to those federal benefits?

      “It’s liberal, it’s left.”

      Shows what has happened to “liberal” and “left.” What happened to “conservative” and “right” during the Generation Greed era is similar.

      Reply

    • Yes, the taxpayers of all states will be on the hook, but the possibility of default is remote. The Feds can always take the minimum payment due by reducing the aid it gives each year.
      So YOU want the Feds (aka taxpayers) to BAIL YOU OUT? And then if there is a default DEDUCT that amount from what the feds give the states, so in effect YOU want the Feds to BACK your rip off DB pension at the expense of the common man, the taxpayer, including the poor and middle class, the ones who would SUFFER from that lack of federal money going to infrastructure and other actions that benefit EVERYONE. Wow, talk about an “Entitlement Mentality”. You have it in spades. Here is an idea, if YOUR pension fund is UNDERFUNDED because: 1) the politicians, whom you bought off, refused to put in the required contributions; 2) while also RAISING the pensions retroactively; an 3) while gifting out annual raises instead of taking that $$ and maintaining the pension system at a safe, 100% funded, level, then YOU are the one that needs to take the hit in the shorts, not innocent taxpayers ,

      Reply

  7. Posted by Eric on October 2, 2018 at 9:10 am

    A default already took place regarding the cost of living adjustments. For people who had already been retired, before the law was changed in 2011, removing the cost of living adjustment was a default. The State of New Jersey already defaulted upon its pension obligation or promises. The cost of living adjustment had been granted by statutory law, case law, and employee handbooks to all who had been retired at that time. The Appellate Division, of the Superior Court, agreed in a unanimous reported opinion. Associate Justice Barry T. Albin, of the New Jersey Supreme Court, made this clear by asking the question as to how people, who had already been retired, could “plan their lives” when the law had been changed AFTER they had retired? He rightfully believed that this class of retirees should have been protected. He mentioned a protected class of retirees. Associate Justice Albin had long been reappointed to the Supreme Court, and was free from any political pressures, resulting in promises, that other “justices”, including the “CJ”, had made to ensure their reappointment.
    If you do not agree with providing that class of retirees with the cost of living adjustment, you are missing the most dangerous point that New Jersey is a Banana Republic, ruled by a corrupt New Jersey Supreme Court. It is not a state based upon laws, but rather is based upon dirty politics. I am not advocating any position; I am merely stating a most disturbing fact about the absence of law in the once proud Garden State.
    That fact can no longer be disputed.
    Bottom line-anything at all is possible in New Jersey.
    Eric

    Reply

    • Posted by Tough Love on October 2, 2018 at 9:24 am

      COLA wasn’t “removed”, it was “suspended” until the funding ratio reached a higher level …. not yet reached.

      One potentially BIG problem is that with Police Plans now in the hands of their Union, and the funding-level-minimum standard ELIMINATED (for their Plans only), I’m sure the Police Unions will be looking for any/every opportunity possible to reinstate their COLAs ASAP.

      As the BS of counting phony assets like the Lottery …… which they count as RAISING the funding ratio …….. doesn’t help from the Taxpayer’s perspective to NOT reinstate the COLAs.
      ————————————–

      And no, the Banana Republic was the Union/Elected-Official COLLUSION that resulted in the granting of these LUDICROUSLY excessive Public Sector pensions in the first place.

      Reply

    • “Bottom line-anything at all is possible in New Jersey.”

      Except telling later-born generations the truth.

      https://larrylittlefield.wordpress.com/2017/12/03/will-new-jerseys-phil-murphy-be-the-first-to-tell-the-truth-about-generation-greed/

      Reply

  8. Posted by Eric on October 2, 2018 at 10:00 am

    NOT SO. READ CHAPTER 78.
    Eric

    Reply

  9. Posted by Stephen Douglas on October 2, 2018 at 1:29 pm

    Sweeney…
    “The army is the public.”?

    And who, exactly, is the enemy?

    NJEA…
    “It’s unfortunate that senator Sweeney sees it as a war. Public employees are not his enemy.”

    Whether you love unions or hate them, I have to agree with NJEA on this one.

    Yes, there will be cuts. Not just for new employees and/or current employees, but also for current retirees. It is inevitable, considering the huge intentional underfunding in New Jersey, Illinois, and perhaps other states.

    War?

    What the hell were you thinking Sweeney?

    Reply

    • What the hell were you thinking Sweeney?
      I am pretty sure he was thinking “This JIG is UP!”

      Reply

    • Posted by Tough Love on October 2, 2018 at 2:00 pm

      Stephen Douglas (Aka Earth),

      You are correct that the Public Sector WORKERS are not the enemy, and not (at least individually) responsible for the Public Sector pension mess.

      But the WORKERS are indeed the FINANCIAL BENEFICIARIES (via their outsized pensions & benefits) of the Public Sector Union/Elected-Official COLLUSION that led to those outsized pension/benefit “promises” …………… so THAT (to the WORKERS) is where Taxpayers must rightfully look to right this wrong, via 50+% REDUCTIONS in the value of those ludicrously excessive “promises”.

      Reply

      • Posted by Stephen Douglas on October 2, 2018 at 4:59 pm

        Bullshit.

        Trump says (fake) news is “the enemy of the American people”.

        Fake news being defined as anyone who disagrees with Trump.

        Tillerson says Trump is a “fucking moron”.

        Sweeney says he wants to go to war over pensions, and the “public” is the army.

        Sweeney is a fucking moron.

        It’s easy enough to start a war. Much more difficult to stop, or even control it. And thousands of innocents suffer.

        There is a very obvious need for serious reform in most public pensions (as well as MEP pensions). Some of that will entail reductions in pensions. In some cases, even for current retirees.

        War?

        May cooler heads prevail.

        Reply

        • Posted by Tough Love on October 2, 2018 at 7:00 pm

          No, NOT “bullshit”. EVERY word I stated is true and dead-on-the-money.

          You just can’t accept the TRUTH ..….. you being a retired Public Sector moocher.

          Reply

          • Your truth…

            Meh

          • Posted by Tough Love on October 2, 2018 at 11:22 pm

            I’ll REPOEAT it for you Anonymous………..

            —————————-
            You are correct that the Public Sector WORKERS are not the enemy, and not (at least individually) responsible for the Public Sector pension mess.

            But the WORKERS are indeed the FINANCIAL BENEFICIARIES (via their outsized pensions & benefits) of the Public Sector Union/Elected-Official COLLUSION that led to those outsized pension/benefit “promises” …………… so THAT (to the WORKERS) is where Taxpayers must rightfully look to right this wrong, via 50+% REDUCTIONS in the value of those ludicrously excessive “promises”.
            ——————————

            So tell the readers Anonymous,WHAT in my above comment is not accurate and truthful ?

  10. “Public employees are not his enemy”

    HELL YES public employees are the “enemy”. In fact public employees are Public Enemy #1today.

    They are mafioso scammers of modern times. Receiving MILLION++ pensions, as young as their 40’s, while only contributing 5%, and even LESS than 5%.

    Reply

    • Posted by Tough Love on October 2, 2018 at 3:08 pm

      Yes, they only contribute in $$$ only about 5% of the $$$ they expect (based on life expectancy) to collect on average, but to be fair, you really need to adjust for the time value of money, which in THIS comparison means accumulating all employee contributions with interest to the date of retirement and comparing that to the value of all pension annuity payments (through life expectancy) discounted back to the date of retirement.

      When done with a reasonable interest rate (the SAME RATE in the contribution and payout periods), all employee contributions STILL only pay for no more than 10% to 20% of the total cost of a LUDICROUSLY excessive pension ………… with Taxpayers supposedly responsible for the balance (even though Employers=Taxpayers are currently contributing MUCH MUCH less than what would be necessary to fully fund these absurd pension “promises”).

      Reply

    • Posted by Stephen Douglas on October 2, 2018 at 4:30 pm

      Some public employees receive million dollar pensions. Not all. Not even most.
      Some public employees receive pensions as young as their 40s. Relatively few.
      War is hell, and a lot of innocent people are killed.

      Grow up, pup.

      Reply

  11. Posted by Eric on October 2, 2018 at 3:42 pm

    Tough Love:
    The reason I wanted you to read Ch. 78 is to show you that the cost of living adjustment is gone forever in New Jersey, and is NOT merely suspended. You state that it is merely “suspended” until the funding level reaches a higher level. That is NOT true.
    A COMMISSION determines IF and when the cost of living adjustment is to be reinstated after the funding level is reached, AND the COMMISSION determines what the cost of living adjustment would be, meaning how the cost of living adjustment would be calculated, IF it decided to reinstate it. Again, to repeat, when a funding level is reached, reinstatement of the cost of living adjustment is NOT automatic, AND how it is to be measured is to be determined by the COMMISSION. For arguments sake, Ch. 78 could allow a reinstatement of the cost of living adjustment for a penny increase per year as per the commission.
    THE COST OF LIVING ADJUSTMENT IN NEW JERSEY IS GONE FOREVER TOUGH LOVE. EVERYONE KNOWS THIS EXCEPT FOR YOU. PLEASE READ CH. 78.
    Richard Nixon TEMPORARILY suspended the United States dollar from being linked to gold on August 15, 1971. Yes, we are still waiting for the United States dollar to be linked, once again, to gold today, and Nixon is long gone, dead and buried as are and will be the retirees, who retired in New Jersey prior to 2011, and relied upon the law.
    This is why New Jersey is totally corrupt, with the exception of Associate Justice Barry T. Albin.
    Eric

    Reply

    • Posted by Tough Love on October 2, 2018 at 5:20 pm

      I’m not sure if what you stated is correct, but for what it’s worth,I hope the COLAs NEVER come back.

      Private Sector Corporate-sponsored DB Plans (for the very few Private Sector workers lucky enough to be in a DB Plan that isn’t frozen) do NOT include COLA-increases, and Public Sector workers are NOT “special” ………….. and deserving of a better deal on the Taxpayers’ dime.

      Reply

  12. Posted by Eric on October 3, 2018 at 2:34 pm

    Tough Love:
    I understand your point of view in not wanting cost of living adjustments to return in New Jersey. However, I have been experiencing hardships faced by people in nursing/assisted living homes whose families counted on cost of living adjustments to help defray some of the rising costs incurred in housing their love ones. If the families had known that there would no longer be any more cost of living adjustments to the pensions in question, they would have explored other options. Many of the residents are retired school teachers whose families feel “double crossed” by the “changing of the rules” in 2011 AFTER their loved ones had retired. Many are now “locked into” contracts that are unsustainable.
    This is why Associate Justice Barry T. Albin asked how can people plan their lives? The impact felt by the corrupt Supreme Court of New Jersey is enormous.
    Interesting point is that Governor Murphy signed a huge pay raise into law for the judges that is indexed to inflation.
    I thought Governor Murphy was concerned about those who worked in public jobs for years emptying bedpans. Remember, Murphy is a Goldman Sachs alum.
    Now everything makes perfect sense!
    Eric

    Reply

    • Posted by Tough Love on October 3, 2018 at 3:47 pm

      Quoting …………….

      “However, I have been experiencing hardships faced by people in nursing/assisted living homes whose families counted on cost of living adjustments ……….”

      That’s ONE side of the coin. The OTHER SIDE is that until 2011, THEY (and all other retired NJ Public Sector workers) got what I’ll call an “UNJUST BONUS”, COLA-increases that the pensions of retired/pensioned Private Sector Taxpayers (who by the way are responsible for 80% to 90% of the total cost of the Public Sector pensions) DO NOT INCLUDE ……… and since 2011, that “UNJUST BONUS” has simply been eliminated.

      I’m fine with that, given that the truly needy have Social Service options and when nursing home costs can no longer be paid from resident income, Medicaid picks up the cost.

      Reply

  13. Posted by Eric on October 3, 2018 at 7:03 pm

    Tough Love:
    Unfortunately you are wrong, yet again. Medicaid will not “pick up the cost” due to indigency alone. In order to qualify for medicaid, one must not only be indigent, but also be unable to perform the Activities of Daily Living. These are physical tests such as “transferring” eg going from a chair to a bed. Grooming, such as combing one’s hair or brushing one’s teeth. Many patients are indigent, yet fail to qualify for medicaid since they are able to function on a rudimentary level. Once one is able to perform the Activities of Daily Living criteria, the family must pay the ENTIRE amount of the nursing/assisted living home bill. Many times this bill is $13,000.00 per month.
    Please do your research prior to posting as to not broadcast false information. Even though I hold a law degree from Columbia University, I did not know of the Activities of Daily Living until I read the warnings in the literature including the sign off acknowledgement sheets provided by the nursing homes. Relatives of retired government workers were horrified by the denial of medicaid.
    Again, the New Jersey Supreme Court struck these unfortunate people with a crippling blow with relish, since there is nothing too low to be enjoyed in the world of corruption.
    Eric

    Reply

    • Posted by Tough Love on October 3, 2018 at 7:11 pm

      Well, perhaps if they CAN “perform the Activities of Daily Living”, they don’t belong in a nursing home, and should be living with family members.

      Reply

  14. Posted by Eric on October 3, 2018 at 7:52 pm

    Tough Love:
    I will end with this one comment. If you respond to me, you have had the “last word.”
    Many people, suffering from advanced dementia or Alzheimer’s, are ambulatory, and family members cannot stay home from work and tend to them. Many leave burners lit on the stove, violently “fire” any home health care aid from their homes, walk naked out the front door into the roadway etc. I have witnessed all of the above.Since they can perform the ADL ( Activities of Daily Living) medicaid denies coverage.
    Donald Trump also cut the budget regarding medicaid by approximately one billion dollars. As a result, many people, who, at one time may have been accepted into the program, are rejected due to federal budgetary constraints. The feds now watch the performance of the ADLs “like a hawk.” I have discussed this issue with many nursing homes. Some asked me how long I expected a loved one, who is an in-law, to live. I responded that my crystal ball is not working properly.
    I am not attacking you, I just do not want people to read your post and believe, as I once did, that once the money is consumed by a nursing home, medicaid will pay. That is not the case.
    Have a good night.
    Eric
    PS I just received a call, this evening, that a relative of mine “escaped” tonight from a facility. Ironic. The police found her unharmed.

    Reply

    • Posted by Tough Love on October 3, 2018 at 11:39 pm

      Eric,

      While I understand what you are offering, I don’t buy most of it.

      First, the elderly IN nursing homes (that need to be there …. for whatever reason …. whether they can or cannot qualify for Medicaid) simply CANNOT be put out into the street if they can no longer afford the facility fees. The facility MUST find another suitable place willing to take that resident or keep them there and continue to fight the gov’t for Medicare approval …….. usually getting it when there is no other place for that resident to go.

      Second, elderly retired teachers (and similar retirees on Public Sector pensions) usually have a currently payable pension in the $40K range (or less), and the beneficial impact of COLA-increase (suspended since 2011) is indeed VERY minimal in the context of $10+K/mo nursing home costs. How much could the COLA INCREMENT pay for …….. a month per YEAR?

      I believe you simply support keeping COLA for all NJ Public Sector retirees and I don’t.

      Public Sector workers are NOT “special” and deserving of a better deal than the Taxpayers who are now responsible for 80% to 90%of the total cost of Public Sector pensions.

      Reply

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