In one of the sillier broadsides in the propaganda war over the worth of a New Jersey public pension a ‘think’ tank probably funded by unions released a report today claiming that New Jersey’s non-public-safety plans “rank 95th in pension generosity out of 100 top plans nationally” based on criteria they made up:
To rank each pension plan’s overall generosity, we first compare our 100 largest state pension plans on three separate measures of pension generosity:
- The strength of their automatic inflation protection (assuming 2.5 percent inflation).
- The amount by which pensions increase with each additional year of public service as a percentage of “final average salary,” an amount commonly referred to as “the multiplier.” (Final average salary is usually calculated as the average salary over the final three or five years of an individual’s public service.)
- The amount employees contribute to their own pensions. When employees contribute less, we consider their pension more generous.
Overall generosity is determined by giving each pension plan a score out of 100 based on its rank on these three separate dimensions of pension generosity. A pension plan ranked first on one of the dimensions receives 100 points, a pension plan ranked 100threceives one point. Adding up the three ranks generates the plan’s overall generosity score. The 1st-place-ranked and most generous pension plan received an overall score of 225.5. The least generous pension plan by far, with a score of 24.5,covers municipal employees in California’s Contra Costa County. The pension plan ranked 99th, the New Hampshire Retirement System, received an overall generosity score of 74.5, not far below New Jersey’s 85.
Using their criteria I can easily design a plan that would rank in the top 5 in generosity without costing taxpayers a dime.
New Jersey’s bond rating have been downgraded seven times during the Christie administration with ratings agencies citing retirement benefit costs each time:
2/9/11 S&P Downgrade: AA- from AA
4/27/11 Moody’s Downgrade: AA3 from AA2
8/18/11 Fitch Downgrade: AA- from AA
4/9/14 S&P Downgrade: A+ from AA-
5/1/14 Fitch Downgrade: A+ from AA-
5/14/14 Moodys Downgrade: A1 from AA3
9/5/14 Fitch Downgrade: A from A+
The explanation of New Jersey’s most recent bond rating downgrade includes:
Above-average state debt obligations are compounded by significant and growing funding needs for the state’s unfunded retirement liabilities. Continued pension funded ratio deterioration is projected through the medium term and full actuarial funding of the required contributions is several years off.
It was the employee benefit liabilities yet only three years ago the State Senate president assured us:
that the recent reform ‘clearly fixes the problem.”
Why didn’t Fitch believe him?
If governments are allowed to break pension contracts because they don’t feel like paying the costs, then the bond holders are in the cross hairs too.
Richard – comment to Another Downgrade
According to documents filed this week by New Jersey defending the state’s refusal to pay a large portion of an already understated pension contribution, defaulting on bondholders was considered. Page 4 of that brief makes that fact clear:
The story first appeared in the International Business Times (IBT) with lots of charts under the screaming headline:
Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion
Today it was picked up by AOL, Esquire, and Daily Kos all using the angle that Christie wants to take money from retirees barely scrimping by so he can give it to his Wall Street friends who then donate to political campaigns of his choosing. But is that the real story?
I predicted they would be a combination of five patsies and quislings but apparently Governor Christie could not fill out that roster so he settled on some professional people but raised the number to nine so as to assure that his original intention (having this commission rubber-stamp whatever study the Divisions of Pensions is almost done with) will play out though not through blind obeisance as originally intended but through internal bickering which this commission is certain to have plenty of. The members, per the press release:
As in Decision Days.
Today a judge will hear arguments on whether the State can skip pension payments (it can for this year anyway) and tomorrow: