The math doesn’t work. The net asset value of the Pension Fund assets managed by the NJ State Investment Division was $72.9bn as of June 30, 2016. 41% of the 785,000 members in seven public pension systems are retired versus 51% of the members who are still working and contributing to the pension plans, while 8% are vested members no longer accruing benefits but not yet retired. That 41% of 785,000 = 321,850 retirees being supported by only 400,350 members still contributing to the plan, i.e. 1.24 workers per retiree. You need over 2 workers for every retiree to have a solvent plan, so already this is a mess with too few employees contributing to a system with too many retirees. Those 321,850 retirees draw annual pensions on average worth $31,070 but this number will explode as baby boomers retire through 2024. For example, note twelve of the fifteen +$100,000 a year public pension retirees in the Village of Ridgewood as of 2015 were police & fire, with only three from the BoE. But we just had seven more policemen retire in 2016. Once the baby boomers all retire, there are potentially less workers than retirees in NJ, which is the definition of a PONZI scheme with $10bn a year paid to plan beneficiaries vs. plan assets $72.9bn.
NJ pension funds cut checks to retirees worth over $10bn last year versus pension plan assets of $72bn. The problem is the benefits are too generous. At the current cash burn rate, the funds will be insolvent in less than a decade, with liabilities far in excess of plan assets. Think about that: we pay out over $10 billion per year in public pension benefits to retired public sector workers. So even with assets of over $70 billion, the system is fragile. Public pension plan and health care benefits need to be diminished before taxes can be raised further as we are already the highest taxed residents of any state in the nation. Start by lowering the assumed annual rate of return to 7%, use the updated actuarial mortality data to add 2-3 years of life expectancy to the liability. Then start moving all new hires to defined contribution pension plans like 401(k) plans to prevent politicians and unions from meddling with employee pension assets. If the pension assets are in the hands of the employees and not the state and municipalities, they will be protected. Then convert all current employees from Platinum to Bronze level health coverage, which is the equivalent of what is offered in the private sector. Only then can taxes be raised for funds specifically earmarked to close the pension liability gap.