“Ummm, those unfunded pension liabilities are based on some outrageous assumptions:
1. The State Investment Council assumes an annual return of 7.5% on the NJ state pension assets; a 30 year US treasury (which matches a long term pension liability) currently yields 2.825%. Pew Charitable Trusts suggests 6.5% is a more conservative assumption, which would increase the unfunded liability by 28% versus the current assumption assuming 7.5% annualized returns…
2. The actual unfunded liability is much larger than advertised, as highlighted in the GASB accounting differences highlighted every time NJ sells state debt. See FASB #158 if you care. Basically, under the new GASB standards, pension assets are reported using actual market values rather than the traditional calculations that smoothed gains and losses over time. As a result, continued volatility in reported annual funding levels is likely.
3. The actuarial assumption for life expectancy haven’t been updated yet for the new mortality projections (Society of Actuaries now says the average 65-year-old American man will live to 86, while the average 65-year-old woman will live to age 88). The pension plans assume shorter lifespans (early 80s) which means they haven’t accounted for people living longer and drawing their pensions for more years than they actually served!!! The actuarial math doesn’t work.
4. NJ public sector employees are only contributing $7bn a year towards their own defined benefit pensions versus $12bn in pension checks sent annually to retired NJ public sector workers. That $5bn gap is covered by investment performance and contributions from the state (current record $3.2bn contribution is 9% of the state’s 2018 budget), which means after debt servicing and mandated expenditures, there are less and less funds available for everything else in the state like schools, state universities, infrastructure, rail transit and highways, parks, hospitals, etc.
5. Why should any 52 year old, which is the average age of PFRS retirees after 25 years of service, be allowed to retire on a full pension? Make them wait until age 65 until they start collecting their pensions, move new hires and those with 5 years or less of tenure to defined contribution pension schemes, with lower cost health insurance coverage than the current platinum care which is far better than any plan offered in the private sector… why should private sector taxpayers subsidize better healthcare coverage than they get through their employment for public sector employees? It makes no sense.”