Reader says Don’t blame the State Workers on Pensions
NJ Gov. Chris Christie’s pension moves cost taxpayers and retirees billions
Aug 25th 2014 3:05PM
By RYAN GORMAN
Embattled New Jersey Governor Chris Christie faces another possible scandal – this time for possibly costing tax payers nearly $4 billion after diverting state pension funds to Wall Street firms.
Wall Street mega firms Blackstone, Third Point, Omega Advisors, Elliot Associates and The Carlyle Group have reportedly pocketed $3.8 billion dollars in fees since 2010 at a rate triple what was paid to pension fund managers prior to Christie assuming office.
Christie advisor Robert Grady notably had a long career at The Carlyle Group prior to joining the government, according to the International Business Times.
The switch was made in 2010 to give the state “diversified portfolio and maximize returns while appropriately managing risk,” Grady told the trade publication Institutional Investor in a report headlined “New Jersey ups the ante.”
The Carlyle Group has received $450 million in state pension funds while ranking among the top fee earners on Wall Street, according to state disclosure documents.
All management fees paid to firms by the pension have skyrocketed from only $125.1 million in 2009 to nearly $400 million in 2013, according to the New Jersey State Investment Council, which oversees the pension.
Those higher fees coupled with underperforming assets have left the pension with a benefits gap bigger than the state’s entire education budget.
This while the pension eked out a return of only 11.8 percent last year while similar funds average nearly a full percent higher, according to the IB Times.
Both pension funds used by teachers in California saw returns well over 18 percent in June alone, the Associated Press reported. They had expected returns of only 7.5 percent for the whole year.
New Jersey’s fund is also invested at a rate of just over 25 percent in financial firms, according to the NJSIC, more than double any other sector.
At least one person voted against Christie’s diversion plan, and he told the IB Times this outcome was inevitable.
“All the leading players on the [New Jersey State Investment Council] were from the alternative universe and all of their decisions were driven by a political agenda and an investment ideology which had no relationship to facts on the ground,” said Jim Marketti.
“And the facts were that you simply couldn’t justify these investments on the basis of what they cost in fees to generate a dollar of new returns.”
A New Jersey official defended the moves, saying that the state’s pension has earned a return this year of 15.9 percent.
Similar funds are averaging returns of well over 17 percent, according to the IB Times.
This is just the latest in a series of bizarre scandals for Christie that have included the “Bridgegate” traffic tie-up at the George Washington Bridge, the possible bullying of at least one high-profile mayor (Hoboken’s Dawn Zimmer) over Superstorm Sandy recovery funds and scrutiny of real estate deals around the state.
The questionable quandries have put a dent in his reported presidential ambitions as Christie defends the pension problems by saying they are proof retirement benefits to retirees – earned through decades of service to the Garden State – need to be cut.
There’s no word on whether “The Governor” would also demand fees paid to Wall Street also be cut.
https://www.aol.com/article/2014/08/25/nj-gov-chris-christies-pension-moves-cost-taxpayers-and-retire/20952169/
The problem with this article is it fails to mention all the graft of prior administrations , looking to blame only Christie while both Corzine and Mac Creepy ( and most of them since Whitman) have far worse records managing the state pension funds ,Mac Creepy even hired non wall street totally unqualified advisors to manage money .
Remember large returns come at a price and you get what you pay for . If they are over charging well that typical politicians ,but the real issue is simple math , while you cant blame most of the workers for taking the checks , you can blame politicians looking for those union contributions to their political campaigns ,while the taxpayer has no representation at the bargaining table ,its a very significant conflict of interest.
The crux of the issues is with all pension systems is that it takes 10 or more workers paying in to take care of every retiree, but productivity and technology continue to shrink the work force .Less workers equal less money being paid in . To make up we increase salaries and hire more people than we should .
Thus a lot of unproductive dead wood . The private sector found this out a long time ago with US Steal, Bethlehem Steal and the auto industry .
After a certain point you read the law of diminishing returns and for the tax base it becomes totally unsustainable ,.
For example in 1900 it took 5000 people to make 1 ton of steal , in 1980 it took 50 , so now the 50 were paying the pensions for 4950 people…ouch .
States like New Jersey are well past the breaking point ,with companies and taxpayers high tailing it out of here , leaving fewer and fewer people to pick up the tab .
Depending on huge returns on wall street for prolonged periods of time is foolish and very dangerous as the article points out fees need to be cut , money borrowed needs to be returned with interest,and retirees living out of state need to be taxed on their pension at a higher rate as well as current state employees need to pay a far
larger share for their benefits.
