STEVEN MALANGA • | JUNE 15, 2015 | 12:01 AM
The New Jersey legislature, looking to solve a budget crisis back in 1992, passed a bill that changed some of the accounting principles of the state’s government employee pension system. The technical changes, little understood at the time, made the system seem in better financial shape than it actually was, allowing the legislature to reduce contributions for pensions by $1.5 billion over the next two years. Legislators seized those extra dollars and redirected them into other spending.
Jersey officials could manipulate their pension system because local governments have latitude in how they run their own retirement plans. So what they did was not unique. Around the country, state and local officials have increasingly discovered over the years that they can exploit the complex and sometimes ill-defined accounting of government pension systems, as well as loopholes in their own laws governing those pensions.
Over time, elected officials came to promise workers politically popular new benefits without setting aside the money to pay for them, declared “holidays” from contributions into pension systems and changed their own accounting systems midstream to make the systems seem better funded — all just ways of passing obligations on to future taxpayers. In the process, government pension systems became one of the chief vehicles that state and local politicians used to massage their budgets.
Now we face the consequences. Our elected representatives played a deceptive game of chicken with pension funds. And now the chickens have come home to roost.
$8.7bn in pension checks mailed out last year to NJ public sector retirees, many of whom pay not state taxes in Florida. To make that much money a year just to keep assets flat, we’d need to make more than 10% a year on the $80bn currently under management in NJ pension funds. The fund is running at about a fifth of that this year. In 2018, when the wall of public retirees who’ve taken advantage of the 65% of final comp pension enhancement by the end of 2016, as well as the 40% excise tax on platinum level health care plans (90% of current employees and retirees are platinum level health care), the NJ Pension ddund will need to earn about $16bn a year just to keep flat… or 20% annual returns on $80bn… unsustainable, unsustainable, unsustainable.
Thank you to all the politicians from both sides for having no backbone to fix the problem.
People will vote with their feet. The newbees cant sustain skyrocketing taxes either. Good Jobs will all go next.
tell that to the fire and police dept.
4:34 pm, still lying about the pension system I see Kime. Why don’t you ever mention the over 60 Billion dollars lost because the state’s past and current Governors failed to make the required payments into the pension systems beginning in 1993 so they could balance their budgets?
.
All you can do is complain about a shortfall that you blame the employees for, when we both know the employees are not responsible for the Governors failing to make the proper payments into the various pension systems.
.
Why aren’t you complaining about the Billions of dollars of taxpayer money the state is wasting on pension fund managers who are lining their pockets while providing below average performance results or the Casinos in Atlantic City. Or how about the mess in the Meadowlands, or the money wasted on Abbott Schools, State College sports programs, and corporate welfare for multi-BILLION dollar corporations. And lets not forget the wasted tax dollars on open space, and the overly generous social programs the state has…..
.
Where is your rant about those tax dollars being wasted 4:34 PM or are you only a one trick pony?
Just like private pension plans, these pensions need to be converted to 401k/403b plans.
Businesses did it.
Police & Fire dept don’t see the pension tsunami coming, they only ever talk about their current operating budget and say like future entitlement cost are someone else’s problem… oh wait, they are someone’s problem… the taxpayers!
Hey 1:27 am didn’t you get the memo? The Municipal Police and Fire (PFRS) and the Municipal Public Employee (PERS) pension systems are properly funded.
The under funded pensions are State Pensions and Municipal Teachers Pensions. But hey don’t let the facts stop you from spreading lies and being a public safety hate monger.
New Jersey Pension System funding for the State and Municipal pension systems as of 7/1/2012 from the New Jersey Pension Study – Page 13 graph.
https://watchdog-newjersey.wpengine.netdna-cdn.com/files/2014/01/CSI-NJ-Pension-Study-2014.pdf
Public Employees Retirement System (PERS)
49.1% State
74.5% Local
Police and Fire Retirement System (PFRS)
51.5% State
77.6% Local
Teachers’ Pension and Annuity Fund (TPAF) Includes both contributing and non-contributing members
50.65%
Now do you see where the problem is 1:27 am or do you just want to spread lies and hate?
7:58am, the problem is that you don’t see the tsunami of pension costs coming to our shores. Are you denying that there is a pension tidal wave and that we don’t have the funds to pay for all of these pensions even though NJ residents already pay more taxes than any other state? I’ve got some swampland to sell you in East Rutherford if that is your view. Also, your figures are dated. Guess your pension minders didn’t send you the memo? The updated figures were included in a SUPPLEMENT DATED NOVEMBER 25, 2014
TO OFFICIAL STATEMENT DATED NOVEMBER 13, 2014 OF NEW JERSEY TRANSPORTATION TRUST FUND AUTHORITY $764,055,000 TRANSPORTATION PROGRAM BONDS, 2014 SERIES AA…. The State noted that GASB statements solely govern financial reporting, and reflecting this new method of calculation pursuant to GASB Statement No. 67, they found the NJ’s pension plans were only 44.1% funded as of June 30, 2014:
Public Employees Retirement System (PERS)
27.92% State – depletion date 6/30/2024
65.81% Local
Police and Fire Retirement System (PFRS)
28.51% State – depletion date 6/30/2027
67.6% Local – depletion date 6/30/2055
Teachers’ Pension and Annuity Fund (TPAF) Includes both contributing and non-contributing members
34.1% – depletion date 6/30/2027
Judicial Retirement System (JRS)
26.14% – depletion date 6/30/2021
Look who’s quoting old data now…
wow, those are some big changes in depletion dates from 2012 to 2014…
https://nypost.com/2015/06/14/new-jersey-unions-need-to-face-failed-pension-facts/
Hard to pay the bills when you assume an 8% return, but since last June the funds have only earned 3.8%….
Convert the funds. Private business converted pensions years ago.
Now it is the public pension system’s turn. No one liked it but we lived through it.
You are right 9:56 am those are some big changes in depletion dates from 2012 to 2014
`
Especially when your paying Billions to Pension Fund Managers.
`
Chris Christie’s Administration Omitted Wall Street Fees From State Pension Analysis
.
Even as Chris Christie pushed to cut benefits to retired New Jersey firefighters, teachers and other state workers, saying there simply wasn’t sufficient money in the pension fund, his administration was concealing how millions of those pension fund dollars were spent.
`
The disclosure that the Christie administration’s cost estimates hid large payments to financial firms comes as New Jersey lawmakers are set to hold a hearing on Thursday to scrutinize the more than $600 million a year the state now pays in total pension fees.
.
Gee, could that be why the pensions are losing money? $600 million a year in management fees….WOW!
Great points 9:46… The union sycophants also forget to mention that the public worker pensions in NJ assume that people will die 5-6 years earlier than they actually will pass. Adds about 10% to the unfunded pension liability if you use most recent mortality rates recommended by the Society of Actuaries
Of course 9:46 am would never mention the Millions more spent since Christie took office and moved the pension fund’s away from more traditional investments like stocks and bonds into alternative investments, including private equity, real estate and hedge funds. Fees to third-party managers have risen from about $140 million in 2010 to about $600 million this year.
.
The issue is also politically radioactive since Christie is battling public-sector unions — with the Democratic leadership’s support — in the state Supreme Court over how much the state should pay into the fund for fiscal years 2015. A decision there is pending. Christie and lawmakers are also in the midst of a budget battle with the fiscal year ending June 30.
State Sen. Bob Gordon said Thursday after the hearing he’s concerned that nearly $600 million in fees to hedge fund managers could balloon further.
“If this were to go on, it can have a very substantial effect on the viability of the pension fund,” he said. “Six-hundred million dollars a year becomes tens of billions of dollars over the longer term.”
Thanks for proving my point 9:46 am. As I stated in my post the pension problem is NOT a municipal Police, Fire or Public employee pension problem. It’s a state Pension problem that also included local teachers. Here are YOUR numbers:
.
Public Employees Retirement System (PERS)
27.92% State ——– 65.81% Municipal
.
Police and Fire Retirement System (PFRS)
28.51% State ——— 67.6% Municipal
.
Teachers’ Pension and Annuity Fund (TPAF) Includes both contributing and non-contributing members
34.1%
It’s quite obvious where the problem is and it’s not the Municipal Public Employees Retirement System (PERS) or the Municipal Police and Fire Retirement System (PFRS).
.
The problem is clearly at the state level. Once again thank you for making my point with the updated numbers 9:46 am.
.
Maybe instead of wasting your time posting your misinformation and lies about local Police, Firefighters and Public employee pensions here your time would be better writing to the Governor and telling him to properly fund the STATE pension systems. I would mention the municipal teachers pension system (TPAF) system to Governor Christie first, since it is currently the lowest funded and is the title wave that, by your own admission, will hit first.
.
I expect to hear you start ranting here about the teachers now that we both know the FACTS!
Thanks. Hedge funds don’t charge their fees unless they beat a predefined investment target, so if the state is paying fees that must mean they are making returns net of fees, which is a good thing. Thanks for sharing the good news that they’re making money 11:18am
9:46 nailed it, but forgot to mention another key pension enhancement the unions don’t want us to know… The public pension funds assume annual returns of 8% in today’s dollars, i.e. they don’t account for inflation. In the event that an annual 8% return can be achieved, discounting for future inflation results in a “real return” 5%. NJ taxpayers must make up any difference between the assumed return and the “real return”. An October 23, 2011 article on NJ.com said that “by 2018, state taxpayers will begin paying more than $5 billion a year for pensions, roughly 10 times higher than the partial payment being made in this year’s (2011) budget. The tab for local taxpayers will rise by approximately $600 million by 2020, estimates show. Experts say NJ taxpayers could be hit with much higher pension bills if the state doesn’t pay
11:09 am said….… The union sycophants also forget to mention that the public worker pensions in NJ assume that people will die 5-6 years earlier than they actually will pass. Adds about 10% to the unfunded pension liability if you use most recent mortality rates recommended by the Society of Actuaries
.
Ok Mr. Smart guy, where is your reference, back up your statement with proof, or are we just suppose to take your word that the people running the pensions are stupid and they are using incorrect mortality data and only you are smart enough to know better……
What 9:46 am doesn’t tell you is ……
According to a recent report by New Jersey Policy Perspective, New Jersey’s five state-controlled public employee pension plans actually rank among the least generous in the country when considering the lack of retiree cost-of-living increases, how retirement benefits are calculated, and the significantly higher employee pension contribution rates.
.
njpp.org/assets/reports/NJPPPensionBenefitsDecember2014.pdf
.
While one of the central tenets of repeated calls for major changes to New Jersey’s public pension system is the claim that public employee pensions are overly generous, retirement benefits for the state’s public workers are already among the least generous of all large public-sector pensions in the country, in part because of cuts enacted in the pension reforms of 2011.
.
In fact, New Jersey ranks 95th in pension generosity among the country’s 100 largest plans.
.
New Jersey uses a very low multiplier. The percentage by which New Jersey calculates state pensions per year of service – known as the multiplier – is among the lowest nationally, at 1.67 percent. This means pensions benefits equal 1.67 percent of final salary multiplied by the number of years of service; 1.67 percent is a lower multiplier than all but 21 of the 100 plans. New Jersey lowered the multiplier from 1.81 percent in 2011.
.
New Jersey employees pay more into the system than those in most other systems. New Jersey public employees contribute 6.93 percent of their salaries to their own pensions, more than 55 other plans in the top 100. By 2018, the employee contribution level for New Jersey pensions will rise to 7.5 percent, which is more than employees contribute today in about two-thirds of the top 100 plans.
In addition to being some of the least generous pensions in the country, New Jersey’s pensions are modest in dollar amounts, even though the Garden State remains one of the highest-cost states in which to live. Pension benefits in New Jersey average $26,000.
11:44 am said,
.
Hedge funds don’t charge their fees unless they beat a predefined investment target, so if the state is paying fees that must mean they are making returns net of fees, which is a good thing.
.
Yes it would be a good thing if it wasn’t a lie according to this news report !
.
Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion
.
https://www.ibtimes.com/gov-christie-shifted-pension-cash-wall-street-costing-new-jersey-taxpayers-38-billion-1667622
.
Gov. Chris Christie’s administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state’s pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would “maximize returns while appropriately managing risk.”
.
Four years later, New Jersey has secured only half the promised results. The state has sent more pension money to big-name Wall Street firms like Blackstone, Third Point, Omega Advisors, Elliott Associates and Grady’s old firm, The Carlyle Group. Additionally, the amount of fees the state pays financial managers has more than tripled since Christie assumed office. New Jersey is now one of America’s largest investors in hedge funds.
.
The “maximized returns” have yet to materialize.
.
Between fiscal year 2011 and 2014, the state’s pension trailed the median returns for similarly sized public pension systems throughout the country, according to data from the financial analysis firm, Wilshire Associates. That below-median performance has cost New Jersey taxpayers billions in unrealized gains and has left the pension system on shaky ground. Meanwhile, New Jersey is now paying a quarter-billion dollars in additional annual fees to Wall Street firms — many of whose employees have financially supported Republican groups backing Christie’s reelection campaign.
Those hedge fund managers must have really low predefined investment targets lol.
That’s a lot of words trying to cover up the fact the pension funds are only 44% funded and some of the largest funds will deplete in the next 12 years based on the latest projections. The article above is about that coming tidal wave of pension obligations so what possibly could you be trying to hide with all of your tangents and smoke screens? $8.7bn in pension checks were mailed out in NJ last year alone. Is that what you are trying to divert attention from? Those checks are seen doubling by 2018, the so called pension tidal wave that this blog post is about but you’re not willing to face the facts
11:55am, here’s a recent article explains the new mortality data which proves that NJ, which uses old data, is understating its pension underfunding. https://time.com/money/3913718/living-long-ruin-retirement/
People live longer now which also increases healthcare costs later in life.
Wow, stunning figures 12:25… Now public sector workers in NJ only contribute 6.93% of their salaries towards their OWN pensions for life? So let’s say someone retires in their early 50s on a $57,000 annual pension which is avg for PFRS retirees… If they live to 87 which is the new mortality rate figure, they collect that pension for 37 years, more years than the 25 they actually worked. I can’t think of anyone who wouldn’t like a deal like that, only 7% of my annual salary to get a Pension for 10+ more years than I actually worked at 60%~65% of my final comp! How is that sustainable? Sounds like a Ponzi scheme
11:35, I fail to understand your point, the article above was on the tidal wave of pension costs given NJ public worker pension plans are only 44% funded with an $80bn unfunded liability. No one posted any lies above; those were the state’s own figures. By trying to muddy the water and deflect attention away from the article, one can only assume that you have an alternative agenda related to the fact that you must be a retired Village employee or police? If that is the case, you should be worried about the pension tidal wave.
1:11pm, the link you provided says that total pension management fees paid were $398 million, not the $600mn you quoted earlier. How does that compare to the $8.7 billion in pension checks mailed out by these NJ pension funds that same year?
11:35 has missed a trick there… the state wants to merge the pension funds (overall funding rate 44% as of June 30, 2014 using old mortality data that understate the true pension liability) so while the municipal funds look better funded today, they won’t look as good once merged with the state funds…. it’s kind of besides the point anyway, the article is about a pension tidal wave coming to NJ. If, as you’ve noted, the teacher’s fund and judges fund and state funded PERS & PFRS all run out of money between 2021 ~ 2027, will you still be happy that the municipal pension funds have some money left or will you be sad that your NJ state taxes have gone up by 25% and you’re paying 10% NJ sales tax and at least 25c/gallon more just to keep the status quo limping along? Or will you just be living in Florida paying no NJ taxes on your pension checks from NJ? Face the facts, the tidal wave is coming as per the article above, these are fixed cost liabilities that will take more and more as they crowd out the rest of the state and municipalities’ annual budgets. No amount of whining or complaining about state contributions and past wrongs will change that, so the question you should be asking now is “How do we fix this?” Just saying “pay back the money” is pointless because the money’s been spent on projects like the to pay for votes, it’s not there. Just saying “raise taxes” is also pointless because that only fuels the vampire squid that sucked the life out of NJ’s economy already. There have to be serious compromises and concessions before any additional taxes can be raised.
“How do we fix this?”
I have said it before and I will say it again, Had the proper state contributions been made at the appropriate times the pension systems would all be fully funded and this discussion would be mute.
.
You and every other intellectually lazy voter ignored what the governors were doing with your tax dollars for decades and you let them take money from employee pensions to balance their bloated budgets and now your upset because you realize you are going to have to pay more taxes. Well welcome to the party Mr. Intellectually lazy voter, you didn’t care before because you didn’t think it was going to impact your pocket book, but now you know it will cost you so and your gonna have to pay, like it or not.
.
Maybe now you will look at the wasted tax dollars the state spends on social programs, state college sports programs, Abbot schools, affordable housing, open space, and corporate welfare to multi-BILLION dollar corporations, and lets not forget he casinos in Atlantic city and the sports authority and Meadowlands farce.
.
Maybe if enough of you intellectually lazy voters get together and demand the state stop wasting your tax dollars on these programs maybe, just maybe, your taxes will not have to go up to properly fund the pensions that have been promised.
Hey 12:35 am…..
.
I guess you missed the article someone posted above at 1.11.pm titled “Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion”
.
I will steal the link and repost it here for you to read…..
.
https://www.ibtimes.com/gov-christie-shifted-pension-cash-wall-street-costing-new-jersey-taxpayers-38-billion-1667622
.
So yea you are right the pension fees were NOT the not the $600mn someone quoted earlier, they are $3.8 Billion, yes Billion with a “B”
.
2:04 am, thank you for lucid post. I do have 1 other solution that doesn’t have a shot in hell of happening but is factually correct… New Jersey has contributed several hundred BILLION (yes BILLION) dollars more to the fed than it has gotten back in return over the past 20 odd years. NJ continues to get fleeced (less than 65 cents for every dollar to DC). What about our elected officials getting more of the pie back? If we got 70 odd cents for the buck back from DC your funding gap is cured and you will have a surplus. Of course, the red state brethren who depend on us for handouts will start howling (Kentucky, ‘Bama, Louisiana,Arkansas, Mississippi, South Carolina etc.).. the governor, whether you hate him or love him, was absolutely right when referring to NJ as a donor state..
Less than 7% employee contribution and they want lifetime benefits of $57,000.. They need to get real.
They always say that they are paying in, they never say how little. The hedge fund fees are a distraction. The employees expect too much. Get real.
Agreed Paul, we’re a donor state and that has to change. But I guess 6:49am hasn’t taken his breakfast yet, because when we’ve already been paying the highest state & local taxes in the country and we still can’t afford all of these pension promises, How can you argue that any voter didn’t think this wasn’t going to hit their wallet or somehow didn’t know it was going to cost money to fix? The facts are that proper state contributions weren’t made, the pensions are underfunded, and there’s no money to pay for them unless we live in the draconian state 6:49am proposes with much higher taxes, no social programs, no affordable housing, no open spaces, no Rutgers football, no Abbot schools and no tax breaks to entice employers to invest in NJ
sorry Abbott schools are a disaster , a very expensive disaster , thats a good place to start
7:02 am continues to muddy the water and distract attention away from the subject here, the pension all tidal wave. Why is that? If you’d actually read the article you’d posted, you would have understood the $3.8bn figure was a pension consultant’s estimate of how much more the NJ pension plans would have made in total over 2011-2014 if they’d earned the median return of similar sized pension funds. That’s just bad performance or opportunity cost of hiring the wrong managers. That’s an issue between the unions and the NJ state investment council who hired those managers, it has nothing to do with state and local taxpayers. So why you think state tax payers should make up for the poor performance of the pension funds is absurd, it’s like your asking taxpayers to guarantee the returns of the state pension funds. That’s crazy, no one can guarantee investment returns unless you’re Madoff or I guess living in NJ pension la-la land. Give us a break !
Understood James, so if Abbott district schools aren’t working, let’s reform the program to try to make it more cost effective in ensuring that the students in these districts do receive public education in accordance with New Jersey’s state constitution. The point I’m trying to make is that even if you cut Abbot school funding. – or whatever replaces it – by 20% it will still NOT make a dent in the $80bn pension underfunding and that tidal wave can’t be stopped. The poster at 6:49am is proposing cutting funding for all sorts of things like social programs, affordable housing, Rutgers football, and tax breaks for creating private sector jobs in NJ. He’s also proposing raising state & local taxes. Why? Just so his pension fun doesn’t run out of money, that’s all he cares about. I don’t want to live in a state that only cares about the past and just ignores the future. The money’s not there, so face facts, make concessions, it’s enough already.
James.. That’s the first spot… only issue is, wasn’t the Abbott disaster mandated by the courts? But, where are our reps in DC as we get totally hosed by the states that hold us in contempt… I think the average “transfer of payment deficit” is somewhere over 25-30 bil annually… reduce that to 20 odd bill (we do have to support the red state brethren who hate us but love our cash) we can plug fiscal and pension gaps without raising taxes… and it’s an issue on both sides of the aisle…
7:02 am said
$3.8bn figure was a pension consultant’s estimate of how much more the NJ pension plans would have made in total over 2011-2014 if they’d earned the median return of similar sized pension funds.
.
That’s right. So the Christie hired pension fund managers and the hedge fund managers who were big Christie doners aren’t performing nearly as well as other pension fund managers as they line their pockets with retirees and taxpayers money so they can continue to fatten Christies campaign bank account.
.
And you just keep crying about NJ pension problems and ignore the political thefts. Why is that? Are you one of those pension or hedge fund managers lining your pockets off of the retired and active government employees and taxpayers ?
11:24am is making things up. Clearly they are an public sector pensioner, so it’s in their interest to make things up to support the broken and unsustainable status quo. Facts: 1) Governor Christie does not hire the fund managers who run the NJ pension funds. If you have an issue with who is running the funds, ask your union to raise your concerns with the State Investment Council (SIC); 2) lots of hedge fund and private equity fund managers donate to Republicans just like lots of unions donate to Democrats. Where do Sweeney and Sarlo get their money from? Oh yeah, the iron workers union, the AFL-CIO, the NJEA, the FMBA and the PBA. The fact that Christie gets donations from traditional Republic donors has nothing to do with the pension tidal wave coming our way; and 3) if you have evidence to prove that Christie and pension fund managers have stolen money from pensioners, then prove it. Again I’ll ask you, instead of just whining about what’s happened in the past, how are we going to fix the problem in the near future?