Birdboxing on NJ Hybrid

The Path to Progress report recommends a hybrid plan for newer New Jersey public sector employees and a logical question is how much would the new plan save, if anything. That question was asked at a town hall meeting last week:
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Basically that’s an “I don’t know” but we have these reports and meetings going on so it would be embarrassing to admit that the dialogue being had is rooted in ignorance. So Sweeney’s full response takes a winding trail that goes absolutely nowhere:

From that August, 2018 Path to Progress report here is what the actuaries are running with right now:

The truth is that, assuming even a modest 5%-of-pay contribution into a Defined Contribution style plan, the cost to the state may increase in that both that state contribution and, presumably, the portion employees are paying now (7.5%-of-pay for PERS) will not be going towards funding the Defined Benefit Plan which means that the state will have to make up that lost money (theoretically).  An actuarial study could be in the works saying exactly that which is something that Sweeney and his faux reformers have no interest in seeing.

 

3 responses to this post.

  1. Posted by boscoe on February 19, 2019 at 11:21 am

    You are 100% correct about a “winding trail that goes absolutely nowhere.” Sweeney is straddling so many fences that he should be wearing chain-mail underwear. I was particularly interested in his take on a topic previously discussed here: asset monetization. If I heard him correctly, he said this scheme would not involve “public to private” transfers of assets, but rather “public to public.” That means no outright sales of water systems, toll roads, buildings, etc. That in turn means no upfront cash to dump in the pension portfolio. And that in turn means no investment liquidity and only theoretical “returns.” And, finally, that any actuarial reductions in unfunded liabilities and required employer contributions based on those transferred assets are also illusory and ultimately self-defeating.

    Reply

  2. Posted by Tough Love on February 19, 2019 at 1:33 pm

    I believe it is disingenuous to conclude that costs would go UP if workers were fully or partially moved out of the current DB Plans because they would no longer be contributing (or contributing as much) to the existing DB plans.

    Those who believe otherwise must believe that those workers’ DB contributions are not FULLY needed to fund THEIR OWN accruals, and that all (or some portion) of their contributions are in a sense “excess”, and available to fund the shortfall now existing for OTHER workers and retirees ….. and such a conclusion is patently WRONG.

    “Savings” is properly measured simply by the generosity of the promise BENEFITS. If the replacement Plan (in WHATEVER form ……. even a less generous DB) is “less generous”, there will indeed be savings ……….. period.

    That said we may have a REAL opportunity to fix this (at least for FUTURE Service accruals), and doing so means bringing the generosity of Public Sector Plans ALL THE WAY (yes, ALL THE WAY …….. and worth repeating) down to the level typically granted comparable Private Sector workers. There is no necessity, or justification to provide “MORE”, and continuing to pay “MORE” (even if the new MORE is less than the current MORE) is simply a continuation of the abuse and betrayal of NJ’s Taxpayers.

    ——————————————-

    And an important point ……………

    While most think of “generosity” simply in terms of the $$$ monthly payout, or the pension as a % of final wages, we MUST keep in mind that the younger ages at which Public Sector workers can retire w/o an actuarial reduction has a VERY VERY VERY big impact on “generosity”.

    NJ Police TYPICALLY retire after 25 years of service at or below age 55 with full/unreduced pensions. Even if their per-year-of-service pension formula-factors WERE identical to the FAR-SMALLER ones typical in Private Sector Plans, Police pension would STILL have DOUBLE the “value” (and hence double the COST) simply because they can begin collecting their pension at such a young age. When we add in that Police Plan formulas factors are ALSO often DOUBLE those of Private Sector DB Plans, it’s easy to see why NJ’s Police pensions have a “value” 2x x 2x = 4 TIMES those of the lucky few Private Sector workers who are still accruing pension benefits in Final Average Salary DB Plans.

    If Public Sector workers will STILL be allowed to retire at an earlier age than their Private Sector counterparts, EQUAL generosity means that the HIGHER cost associated with those younger-age retirements must be offset by LOWER Public (than Private) Sector Plan formula-factors.

    Reply

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