The July 1, 2016 actuarial reports for the New Jersey Retirement System plans are out and their main practical purpose is delineating the contributions for the fiscal year ended June 30, 2018. That total contribution amount would be $6,768,969,201 except we have laws that bring it down to $4,260,031,483 ($2,508,937,717 by the state and $1,751,093,766 by localities) with public workers expected to contribute another $1,977,904,061.
By far the largest portion of that total calculated contribution (84.6%) is the 30-year amortization of the underfunding which comes to $5,724,532,942 and develops through a combination of missed contributions and absurdly understated liability values. Here are two worksheets taken from contribution exhibits with some observations:
The New Jersey Teachers’ Pension and Annuity Fund (TPAF) is abysmally funded which necessitates a certain amount of lying so as to keep contribution amounts down and the people who might make trouble reasonably quiescent. One of the more pernicious machinations the actuarial profession has condoned is asset smoothing which in the case of the July 1, 2016 TPAF actuarial valuation means pretending to have $27,169,758,348 in assets in the plan when you really* only have $23,732,571,086. Milliman brings this $3.4 billion into existence thusly:
All the actuarial organizations I know of are non-profits which means their 990 forms are on http://www.guidestar.org and their 5500 forms, if they have pensions, are on http://www.efast.dol.gov. Going over this data two things stand out.
1) These places pay pretty well judging by the salary of the highest paid official from each:
Connecticut Governor Dannel P. Malloy and state employee unions announced an agreement Friday to restructure (i.e. reduce) pension payments:
The deal was reached after months of behind-the-scenes talks regarding the funding calculations as the state was facing potentially huge future pension payments and tried to “help avoid the fiscal cliff the state would otherwise face in the coming years,” the administration said.
The agreement, which still requires approval by the state legislature, was not designed to change any benefits for current or retired state employees. Instead, it was crafted to make sure that the state could have more predictability in funding the pension system in the coming years — by restructuring the system and extending some payments over an additional 14 years.
“It was incumbent upon us to reform this system before facing the fiscal crisis that could have resulted from $4 [billion] to $6 billion annual payments,” Malloy said. “This agreement does not alter employee benefits or employee contributions in any way. It simply allows the state to fully fund its obligations at realistic amounts that will end with Connecticut resolving the unfunded liability and emerging with a system that is fully funded. We are holding true to the ideal of improving the financial landscape for future generations.”
Where would they get the idea that reducing contributions while making no changes in underlying benefits leads to long-term solvency?
On October 27, 2014, the Society of Actuaries published its (new) RP-2014 Mortality Tables recommending new mortality tables for the valuation of defined benefit plan liabilities. The new tables significantly increase life expectancy assumptions and, if adopted by regulators and DB plan actuaries, will significantly increase DB plan liability valuations for purposes of disclosure, funding and de-risking.
So far the IRS has not incorporated this new table and they might not have to as the American people seem to have stumbled upon their own solution to the pension crisis.
s2810, introduced on November 14 and to be voted on today, would require New Jersey to pay its pension contributions on a quarterly basis by September 30, December 31, March 31, and June 30 of each year, beginning July 1, 2017.
The bill’s sponsor, State Senate President Steve Sweeney, had an opinion piece in njspotlight today claiming:
Making pension payments every three months — rather than at the end of the year — will ensure that the requisite contributions are made, not skipped. Today, New Jersey legislators will vote on bipartisan legislation to commit the state government to a schedule of quarterly pension payments that will provide fiscal stability to our underfunded pension system and save billions of dollars in future costs for state taxpayers.
Either Sweeney is willfully ignorant of pension funding or he believes his intended audience is since this bill will actually REDUCE the State’s pension contribution.
The American Legislative Exchange Council (ALEC) came out with a report this week based on reviewing the latest available actuarial valuations of over 280 state-administered pension plans and adjusting the discount rate from an average of 7.37% to a ‘riskless’ rate of of 2.344%.
I disagree with the methodology since I believe the funded status of a particular plan should be considered when adjusting the wishful discount rates that the plan actuaries who politicians hire are ‘encouraged’ to use. That is, a plan closer to full funding should be able to use a rate closer to that 7.37% while a pure pay-go plan (Puerto Rico) should use a rate closer to 0% since that is about what they are getting for the few days any money stays in the trust.
Nevertheless there were some nice charts ranking states by Funded Ratio, Unfunded Liabilities, and Unfunded Liabilities Per Capita. However, I did not see where they had the underlying data so, based on those charts, I decided to extract some other numbers.