NJ’s public sector pension plans are expected to be mostly insolvent by 2027 as the pension demands of retirees far outweigh the capital appreciation and new contributions to the fund. That’s what happens when you assume 7.95% annual pension fund returns (not adjusted for inflation) and 1980s era mortality data to pay for “special” retirements after 25 years of service. The fact is people are living longer than they were in the 1980s. So NJ has public sector retirees who will earn more from their pension (plus health plan benefit cost savings before Medicare kicks in) than they did in their 25 years of service. For example, the average PFRS retirement age is 52. If that retiree lives to 84,the recent expected average male lifespan in the US, then they’ll draw a pension for 32 years vs. only 25 years of service. This is nothing more than a Ponzi scheme where retirees are taking out much more than the <10% they actually contributed from wages could ever earn in the pension funds. Simply, the pension math no longer works.
There is no ‘fix’ possible. We are well past the point where a ‘fix’ could be implemented.
The optimal path now (something that Christie intentionally/unintentionally followed) is to hasten the demise of the unsustainable pension liabilities. Restructuring is inevitable, the sooner it is done the better it will be for all sides – pensioners as well as taxpayers.
Public sector employees who are not yet of retired should be the most vocal proponents of a restructuring as soon as possible.
The longer nothing is done, the more money current pensioners will continue to take out from the system, and the lower payouts will be for future retirees.
12:02 – Let’s hope it works that way! Otherwise everyone will leave NJ at the first chance they get because of taxes!