Public Pension Liquidity Crunch

A Valuewalk article refers to S&P Global Ratings use of the:

Noting:

If the ratio is negative, it means the pension fund needs more money to continue operating and make all of its benefit payments. The more the ratio is below zero, the more assets will need to be converted to cash just to keep operating and paying benefits.

Some public pension funds could even be in danger of running out of money to make benefit payments, they warned. They identified several plans which they describe as “severely underfunded,” which are those that are less than 40% funded. These pension plans already had negative liquidity-to-assets ratios as of September. That means they are in extremely dire straits in this latest bout of volatility.

That list (along with my analysis of the plan at the top):

Data from the July 1, 2018 valuation report of the plan for New Jersey teachers:

  • Cash: $371,943,696
  • Contributions: $2,291,264,260
  1. Member: $810,899,751
  2. State: $721,230,000
  3. State Lottery: $759,134,509
  • Benefit Payments: $4,309,529,034
  • Expenses: $13,222,178
  • Plan Assets: $22,991,116,840

Plugging these numbers into S&P’s formula yields (7.22%)*

Close enough to S&Ps (7.46%) so let’s project those numbers to what can be reasonably expected as of July 1, 2020:

  • Cash: $400,000,000
  • Contributions: $1,350,000,000
  1. Member: $850,000,000
  2. State: $0
  3. State Lottery: $500,000,000
  • Benefit Payments: $4,500,000,000
  • Expenses: $15,000,000
  • Plan Assets: $15,000,000,000

That ratio would then be (18.43%)**

.

.

.

* (371,941,696 + 2,291,264,260 – 4,309,529,034 – 13,222,178) / 22,991,116,840

** (400,000,000 + 1,350,000,000 – 4,500,000,000 – 15,000,000) / $15,000,000,000

 

 

32 responses to this post.

  1. Posted by NJ2AZ on April 12, 2020 at 1:31 pm

    curious to see some back of envelope calcs for TPAF and PERS depletion dates once the latest reports come out. I (and a handful of others had them) doomed by mid decade BEFORE this all went down.

    Reply

  2. Posted by Tough Love on April 12, 2020 at 2:12 pm

    John,

    Do you really believe the State will contribute NOTHING ?

    Hard to believe with Union-beholden Gov Murphy at the helm.

    Reply

    • Yes, especially with higher heath insurance costs and a lot less money coming it the only way to come up with the pension contribution is mass layoffs of public employees and that is far less likely then declaring a pension contribution holiday – one likely to be permanent.

      Reply

      • Posted by Tough Love on April 12, 2020 at 2:55 pm

        They might also start delaying the payment of bills as Illinois has done for years. But once you start, you never get out from under it.

        Reply

        • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on April 13, 2020 at 12:12 am

          They might also start delaying the payment of bills as Illinois has done for years. But once you start, you never get out from under it.
          They’re not TRYING to get our from under it, they are trying to kick the can so the nuclear financial bomb they’ve built and armed doesn’t explode on their watch….

          Reply

          • Posted by Tough Love on April 13, 2020 at 12:43 am

            Yes, Given the dire state of NJ’s debts (bonds, unfunded pensions & OPEB, etc.) and untenable Property Taxes, one wonders why sane person would want to be NJ’s next Governor.

          • Posted by NJ2AZ on April 13, 2020 at 11:40 am

            “one wonders why *sane* person…”

            you answered your own question. I’m convinced that in this day and age, anyone actually running for certain political offices (president, many governorships) should be an automatic sign they probably aren’t fit for the job.

            i like to think i have at least some sense about me…you could NEVER convince me that governor or NJ or POTUS is a job worth taking

        • Posted by geo8rge on April 13, 2020 at 7:43 am

          Statement from Comptroller Susana A. Mendoza April 2, 2020
          Further payment delays are expected in coming weeks and months

          https://illinoiscomptroller.gov/about/susana-a-mendoza/statement-from-comptroller-susana-a-mendoza/

          Reply

          • Posted by geo8rge on April 13, 2020 at 12:00 pm

            A fun and quick read: 2008–2012 California budget crisis
            https://en.wikipedia.org/wiki/2008%E2%80%932012_California_budget_crisis

            On July 2, 2009, the state government began issuing IOUs to meet its short term financial obligations.

            On July 1, 2009, Schwarzenegger ordered state workers to take a third furlough day each month.

            The budget crisis led to cutbacks and many layoffs at state universities in California. In order to curb the budget shortfalls, the California Board of Regents voted on a 32% raise in all tuition costs for state universities.

      • Posted by MJ on April 13, 2020 at 9:30 am

        John, if a permanent or long time pension holiday occurred, how would that play out with making current payments to retirees plus the healthcare payments? Municipalities couldn’t possibly be able to make payments.

        It seems to me that sadly, NJ has over taxed, over borrowed, over regulated, borrowed some more, and overburdened all of us to the point of no where to turn. I think lay offs of public workers in all areas, cut backs and reforms will happen on some level and the Corona pandemic will be used as the scapegoat.

        IMO, most of the lost jobs and shuttered businesses will not come back and of the businesses and corporations that do survive, they will be doing business much more efficiently and with a lot less employees.

        Unemployment is only going to go so far and loss of health benefits will be awful. None of this takes into account the social and psychological damage that will be inevitable…..higher rates of suicide, higher rates of addiction and alcoholism, higher levels of depression and severe mental illness, higher levels of crime and unrest.

        Reply

        • Posted by NJ2AZ on April 13, 2020 at 11:37 am

          Oh i expect lots of “…and we’re in this mess only because of the inept handling of this outbreak by the federal government” statements and press conferences.

          and i’m sure the people who want to believe it will and those who don’t, won’t.

          Reply

  3. Posted by Marine1 on April 12, 2020 at 5:17 pm

    All speculation that may or may not happen. Much speculation has been posted on here for 15 years that never came true. As a former Marine I like to deal with what actually is happening. I said for three years on here that we had an economy that was propped up on an abundance of unskilled, non essential workers.Many thought I had no idea what I was talking about. They thought they were important to the country. Today we have over 16 million of these people out of work in only three weeks time. Those numbers will be far worse in the coming weeks. The question most should be asking is how can I make myself essential going forward ?

    Reply

    • Posted by Tough Love on April 12, 2020 at 5:48 pm

      It’s nice to have a high opinion of oneself ………… but only when deserved.

      Your commentary here proves otherwise.

      Reply

      • Posted by Marine1 on April 12, 2020 at 6:18 pm

        TL- Again what can you do to make yourself needed,essential in the changing world we find ourselves in ? It’s very straightforward.

        Reply

        • Posted by Tough Love on April 12, 2020 at 8:30 pm

          lol ………… given that you are a RETIRED NJ Police Officer. And that you are collecting a pension that (given is ludicrous generosity and the VERY young age at which you began collecting it) is at least 5 times what would be fair to NJ’s Taxpayers (with THEM, not you) responsible for about 85% of the total cost …………. are you now “essential”, or are you nothing but an unproductive “taker” ?

          Reply

    • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on April 13, 2020 at 12:14 am

      I said for three years on here that we had an economy that was propped up on an abundance of unskilled, non essential workers.
      You mean like you??? A GED dork working a GED job? Pot, meet Kettle.

      Reply

      • Posted by Marine1 on April 13, 2020 at 8:39 am

        Rex- This is the second time in 10 years you have been shit canned because they don’t need you. It’s time for you to come to grips with the failure that is your life.

        Reply

    • Posted by bpaterson on April 13, 2020 at 11:22 pm

      if an essential job guarantees one a job for life, then it sounds like it should pay just a mediocre salary in exchange for that guarantee.

      Reply

      • Posted by Tough Love on April 13, 2020 at 11:42 pm

        Dr Andrew Biggs (who authors many Public/Private Sector compensation studies) has placed a VALUE of 10% of wages on the MUCH greater “job security” in the PUBLIC Sector.

        Millions of Private Sector workers have been laid-off as a result of the pandemic.

        Does anyone here know of ANY Public Sector workers who have been laid off as a result of this pandemic ?

        Reply

        • Posted by MJ on April 14, 2020 at 5:43 pm

          TL, I do not know of anyone personally who has been laid off and I have a lot of public sector friends, relatives, neighbors, etc. However, I think the issue may rear its’ ugly head come budget time next year if not later this year since the state has extended its fiscal year end until September. Schools won’t have the funding they are use to having nor will state facilities, state colleges, counties, etc. etc. Murphy has already shut down 1 billion for various programs, expenditures, etc. Municipalities will be hurting big time for revenues. There just isn’t any money unless the Fed decide to inject every town, city and municipality with a few hundred million
          IDK just MHO

          Personally, I don’t want to see any cops laid off as the levels of social unrest and crime most likely will rise as will homelessness, suicide rates, drug and alcohol use, foreclosures, etc I certainly hope not and am trying to remain positive. I just don’t see those out of work spending their stimulus check on anything other than necessities.

          Reply

          • Posted by Tough Love on April 14, 2020 at 6:46 pm

            I too do not think we should be laying off Police Officers at this time, but I DO believe that we SHOULD hard-freeze (with ZERO future growth) ALL Public Sector DB pensions and replace them (for future service years) with what Private Sector workers typically get from large Private Sector employers ….. 4% to 5% of pay into a DC (401K-style) Plan.

            AND …………. given that Private Sector workers VERY RARELY get subsidized employer-sponsored retiree healthcare benefits from their employers, similarly, Taxpayers should NOT subsidize retiree healthcare in the Public Sector. ALL such subsidies should end immediately.

            EQUAL, but NOT better ………. on the Taxpayers’ Dime !

  4. Reblogged this on Valuespot.

    Reply

  5. […] most of us are (rightly) concerned with Covid19, the ever-watchful BuryPensions blog has once again sounded the alarm.  With our state government understandably consumed with the […]

    Reply

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