Archive for the ‘New Jersesy Pension’ Category

A Most Dangerous Delusion

Tomorrow we may know whether New Jersey has to come up with another $1.6 billion to put into the state’s retirement system for this budget year and the Associated Press (AP) just released a story that will likely be picked up nationally summarizing the situation.

I would not call it sloppy reporting since I see this mindset everywhere and it has morphed into perceived wisdom but it does point up the difficulty of coping with the public pension crisis in this country when so many of the main players (politicians, participants, media, unions, and the public) are ignorant of the facts even as they pretend to lay them out:

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Judging A New Jersey Actuarial Report

Buck Consultants (Buck) in the cover letter to their July 1, 2014 actuarial report for the Judicial Retirement System Plan (JRS) of New Jersey  warns:

No one may make any representations or warranties based on any statements or conclusions contained in this report without Buck Consultants’ prior written consent.

Going to the law dictionary:

A representation is an assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action. A warranty is a promise of indemnity if the assertion is false. The terms “representation” and “warranty” are often used together in practice. If a representation is not true it is “inaccurate.” If a warranty is not true it is “breached.”

So why is Buck afraid of you believing what they say and conclude in their report?

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NJ Pension Payment Case Scenario

Posted late this afternoon in the pension payment case were orders accepting the ‘friend of the court’ briefs of two state legislators saying they intended those mini-payments into the New Jersey retirement system to be contractually required and of New Jersey Citizen Action which pointed to a youtube where Governor Christie made a similar admission.

The paperwork is now all in and oral arguments are set for next week but it seems obvious (to me, anyway) what is going to happen.

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Contracts, Schmontracts, As Long As I’m President

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The State Attorney General filed a reply brief in the pension payment case that basically came down to viewing “contracts” as trite anachronisms when at one time:
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Below are excerpts from that brief:

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Real Number on New Jersey Pensions – 6/30/14 Update

The June 30, 2014 actuarial valuation reports are out.

You might be seeing numbers tossed at you regarding deficits in the state pension of $53 billion and funded ratios of 61%**.  They’re way off.  Based on actuarial reports for the three largest plans I put their real deficit at $158 billion and their real current funded ratio at 33%. Let’s take this in stages as we replace official figures with real-world ones for these three largest plans.

OFFICIAL NUMBERS @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………29.0…………29.9………25.1……………..84.0
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-24.7…………-19.2……….-9.5……………-53.4
Funded Ratio………..54.0%………60.9%…….72.5%………….61.1%

The funds did not really have $84 billion in assets at June 30, 2014. The ‘actuarial value’ in this case means a phony value which in the private sector is used to ‘smooth’ valuations but in the public sector is used to distort. Here are the figures when we use market value of assets:

OFFICIAL NUMBERS WITH ASSETS AT MARKET @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0………25.1……………..81.7
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-26.1…………-20.1……….-9.5……………-55.7
Funded Ratio………..51.4%………59.1%…….72.5%………….59.5%

Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 7.9% interest assumption in a plan that demands liquidity) understate the true benefit costs. Here are the figures using realistic liability valuations:

BURY NUMBERS WITH MARKET VALUE @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury Liabilities……….83.0…………74.0……….53.0…………..210.0
Deficit………………….-55.4…………-45.0………-27.9………….-128.3
Funded Ratio………..33.2%………39.2%…….47.4%………….38.9%

Next we turn to the COLA theft.  2010 liability numbers were adjusted for the plans to take into account the elimination of all future Cost-of-living adjustments that public employees were promised – in writing.  Were that reinstated the respective adjustments that artificially lowered liabilities will need to be reinstated to the tune of 20% (TPAF), 15% (PERS), and 19% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury/COLA Liab…….99.6…………85.1……….63.1…………..247.8
Deficit………………….-72.0…………-56.1………-38.0………….-166.1
Funded Ratio………..27.7%………34.1%…….39.8%………….33.0%

For the year ended June 30, 2014 there was about $10 billion paid out in benefits from the system. With early retirement incentives, the return of cost-of-living adjustments, longer life expectancies, and baby-boomer retirements this payout number should hit $12 billion in three years by which time the fund will be depleted (after returning the interest-adjusted contributions made by employees and that market correction hits for all those ‘alternative’ investments) unless, of course, New Jersey politicians step up and do the honorable thing. There’s a debate as to whether you can put a number on that happening.

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* This is an update of pieces I did on April, 2009, February, 2010 , February, 2011, January, 2012, March, 2013, and March, 2014 with very minor changes in the text.

** Or not, so far there has been no coverage of these numbers based on a quick bing search.

Admitting Insolvency Risk

Any objective observer with even a minimal understanding of pension funding has to recognize that if New Jersey continues funding pensions the way they have been doing there is a significant risk of insolvency within a relatively short period of time.  But with the release of the June 30, 2014 actuarial valuation reports we now have an actuary for the state making this statement in bold print in the first paragraph of their comments:

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Legislators Argue For Their Pension Law

On Monday it was reported that in an “amicus brief made public today, Senate President Steve Sweeney (D-3) and Assembly Speaker Vincent Prieto (D-32) announced that they plan to officially inform Superior Court Mary Jacobson of their disapproval of the state’s failure to make the payments” into the state pension plan as required by the 2011 pension law.

With that warning the Office of the Attorney General filed their opposition to these lawmakers getting involved in this case since their only connection is that they were named in the original complaint and they happen to have enacted the law being interpreted

The legislators’ amicus brief was filed today and among the points made therein:

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