Even After Massive Taxpayer Contributions NJ Teachers Pension is in Trouble Again

the staff of the Ridgewood blog

Trenton NJ, despite Governor Murphy’s happy talk, the teachers’ pension fund (TPAF) is not healthy.

One bad year — pension investments were down -7.9% for FY2022 — forced TPAF to sell $2 billion of assets to meet its annual $4.8 billion obligation to retirees.  At the end of FY2022, TPAF was again under 35% funded, which means that 65% of what is owed to retired teachers is not funded. Taxpayers will be on the hook for any shortfalls.

Murphy’s pension contributions amounted to over 13% of state budgets inflated by federal COVID aid and record tax revenues.  The pandemic budgets from FY2021-2023 were 33% bigger than pre-pandemic budgets, which allowed Murphy to devote $18.5 billion to pensions.  When those revenue windfalls go away, such large pension payments will not be sustainable.

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Teachers and taxpayers need to be told the truth.

With an eye on national office, Governor Murphy has touted his fiscal stewardship of the state, and in particular his making the first full pension payments in 25 years. Indeed, the bond-rating agencies upgraded New Jersey’s bonds in part because of these payments. Murphy claimed: “When we keep making this payment, we’ll go from a pension system that many said was destined for bankruptcy, to one that is solvent, healthy, and sustainable.” But “solvent, healthy, and sustainable” was easier to say back in the spring of 2021.

That was after the pension plan had stellar investment returns of 28.6% for FY2021 (ended June 30, 2021). Added to that was a proposed FY2022 state budget that was 36% larger than pre-pandemic levels due to billions in federal pandemic aid and record tax revenues. That was then. Now, only one fiscal year later, Murphy’s words look like so much happy talk. The markets hit a rough patch in FY2022 (ended June 30, 2022), and New Jersey’s state pension plans — and particularly its largest plan, the Teachers Pension and Annuity Fund (TPAF) — are showing once again how precarious their condition really is. For FY2022, the state’s investment returns were down -7.9% .

For TPAF, this resulted in being forced to sell $2 billion of assets to meet its pension obligations to retirees, according to Sunlight Policy Center estimates. This likely resulted in TPAF’s funded ratio dropping below 35% again, meaning that the state had less than 35 cents set aside for each dollar owed to retirees. And the markets have dropped further since then.

The Pew Charitable Trusts summed up the reality of the situation: “This volatility is a reminder that … states cannot count on outsize investment returns to bail out underfunded pension plans …” [emphasis added] Pew’s warning applies precisely to New Jersey. Despite Murphy allocating over 13% of the state’s inflated COVID budgets to pensions – a total of $18.5 billion for FY2021- 2023 – New Jersey is still counting on outsize investment returns to bail out its underfunded pension plans.

What happens if the markets continue downward? What happens when the federal aid goes away? What happens when tax revenues normalize? The reality is that TPAF’s 35% funded ratio is not healthy. If the state budget shrinks, spending so many billions on unreformed pension plans will not be sustainable. Questions about TPAF’s long-term solvency will return. Murphy will be long gone, but New Jersey taxpayers will be on the hook all of this.

see the full report :

https://sunlightpolicynj.org/wp-content/uploads/2023/01/FY2022-TPAF-Update.pdf