New Jersey | Pension360

Poll: Retirees Ready To Leave New Jersey

A recent poll reveals that a large percentage of New Jersey residents plan to leave the state before retiring – 25 percent of respondents said it was “very likely” that they would move away from New Jersey and retire in another state.

From the Daily Journal:

Joseph Peters wants to retire in New Jersey, but instead he plans to move elsewhere.

[…]

He’s not alone.

Half of New Jerseyans would like to retire elsewhere, according to a new Monmouth University/Asbury Park Press poll. More than a quarter of those surveyed consider it very likely that they will actually move. Cost of living and taxes remain the driving factors for those wanting to flee upon retirement, with more than a third of adults concerned about their savings.

“Taxes are considerably less in Pennsylvania and areas that I’m looking at,” said Peters, who will rely on his savings in his employer’s 401(k) plan, a federal pension and Social Security in retirement. “My federal pension will not have a state tax on it in Pennsylvania, and the property costs are considerably less for buying a raw piece of land and building a new house, or even buying an existing house.”

If soon-to-be-retirees do start moving, there are implications for New Jersey’s economy. From the Daily Journal:

If more retirees follow Peters’ footsteps, New Jersey gradually will experience a difficult time making economic ends meet. An exodus of retirees would mean the loss of income taxes from their pensions and sales taxes from their spending at businesses within the Garden State. Combined, the factors paint a grim picture for those left behind.

“That means less state revenues for other programs that may be valuable to New Jersey citizens,” said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

But New Jersey’s options to fix the situation remain scarce. The Garden State’s budget fell short by $800 million last year. The state balanced its budget this year only after Gov. Chris Christie slashed the state’s contribution to a pension fund for public workers.

“We don’t have a lot of wiggle room to adjust our tax system as it is since we’re short of revenues,” Hughes said. New Jersey’s “not going to change that destiny very much. We are going to lose some affluent seniors, middle-income seniors and the like.”

New Jersey’s housing costs for seniors are the highest in the U.S., and healthcare costs are the third-highest.

The state also taxes pension benefits at a rate of 3.6 percent; that number has grown from 3.1 percent since 2000.

New Jersey Lawmaker Proposes Tweak in Pension Funding Formula To Reduce Burden

New Jersey Senator Stephen Sweeney (D) has proposed a plan to tweak the state’s pension funding formula, which would lower the state’s annual contributions to the pension system.

More details from NJ Spotlight:

Senate President Stephen Sweeney (D-Gloucester) wants to overhaul the state’s pension funding formula to make annual state pension contributions lower and more “manageable” over the next decade while preserving benefits for retirees.

“Governor (Chris) Christie says the state can’t afford to get to 100 percent funding of the public employee pension system, and he used that argument to justify cutting pension contributions by $2.4 billion and to call for public employees to pay more,” Sweeney said in an interview with NJ Spotlight. “But he’s using the 100 percent funding target to inflate the size of the problem and make it look worse than it is for his own political purposes.”

“In the private sector, 85 percent funding is considered the ‘gold standard’ under ERISA,” Sweeney said, referring to the 1974 federal Employee Retirement Income Security Act that sets the guidelines for private pension systems. “That’s manageable. We can get to 85 percent funding, and at that level, we can restore the COLAs (cost-of-living adjustments) for retirees too.”

Sweeney’s plan to change the pension funding formula would save billions of dollars in pension payments in state budgets over the next decade, while still cutting the state’s unfunded pension liability for teachers and state government workers and retirees sufficiently to guarantee the solvency of the pension system. That unfunded liability is now expected to top $60 billion by FY18, up from $54 billion before Christie’s pension cuts.

But John Bury, an actuary that blogs at Bury Pensions, says the plan achieves savings through “manipulating numbers” and doesn’t address any of the real issues facing the state’s pension system. From Bury Pensions:

Most private sector funds (excluding multiemployer plans which are a mess but including ‘one-participant’ DB plans which are thriving) ARE funded at 100 percent and, if not, have to be funded at 100% within seven years under PPA funding rules and the actuarial assumptions that define 100% are legislated (though MAP-21 and HAFTA have watered those down). Apply those private sector PPA factors to public plans and New Jersey’s 54% funded ratio drops to 30%.

A pension system with 30 percent of the funding it needs to cover all accrued pension obligations is clearly regarded as dead to anyone in the business of understanding, and not manipulating, numbers.

New Jersey Anti-Pay-To-Play Bill Passes Senate

The New Jersey Senate on Thursday approved a recently introduced piece of legislation that would tighten rules regarding political donations made by investment firms vying for business from the state’s pension funds.

The bill, called S-2430, passed by a vote of 25–8.

Chart: Is The Actuarially Required Contribution A “Joke”?

Yesterday, Pioneer Institute Senior Fellow Iliya Atanasov called the annual required contribution (ARC) the “biggest joke of the costing and funding process”. He said in a column at Public Sector Inc:

The biggest joke of the costing and funding process is the so-called annual required contribution (ARC) that the actuarial valuation is supposed to determine. In reality, there is nothing “required” about the ARC – most jurisdictions can contribute absolutely nothing and face no legal repercussions, at least in the short run. And when state and local governments don’t make the ARC, they rarely look at, let alone disclose, the long-term cost of postponing the payment and how much more expensive the benefits become as a result. Just look at Illinois, New Jersey and Pennsylvania, which owe some $300 billion in unfunded liabilities between them, or at the sad condition of once glorious cities like Philadelphia, Chicago and Detroit, teetering towards or already in bankruptcy.

As the above chart shows, the country’s public pension funds are indeed failing to pay 100 percent of their ARCs. Often, states and municipalities make full payments to smaller systems but fail to make consistent, meaningful contributions to larger systems. Another chart for more context:

New Jersey Blocks Public Release of Pension Pay-to-Play Investigation

In 2011, politician and businessman Charlie Baker made a $10,000 contribution to the New Jersey Republican State Committee. At the time, he was a partner at General Catalyst, a venture capital firm.

Months later, New Jersey’s pension system gave a contract to General Catalyst to manage the state’s pension money.

After the potential conflict of interest was uncovered by journalist David Sirota, New Jersey launched an investigation into the situation.

But the state is now refusing to release the findings of the investigation. From David Sirota:

Christie officials have denied an open records request for the findings of the investigation.

In a reply to International Business Times’ request for the findings of the audit under New Jersey’s Open Public Records Act, Christie’s Treasury Department said the request is being denied on the grounds that the documents in question are “consultative and deliberative material.” Despite officials’ assurances in May that the probe would take only weeks, the New Jersey Treasury said in September that the investigation is still “ongoing” — a designation the department says lets it stop the records from being released.

IBTimes is appealing the open-records denial to the state’s Government Records Council. Neither Baker nor Christie responded to requests for comment on the issue.

General Catalyst and Baker have denied that Baker had anything to do with persuading Christie officials to invest in the firm. To try to verify that assertion, IBTimes filed a separate request for any General Catalyst documents sent to the New Jersey Department of Treasury prior to its investment. Those documents would show whether General Catalyst specifically promoted Baker’s involvement in the firm when pitching its investment to New Jersey.

Christie officials are pushing back the due date to release those documents to Nov. 6 — two days after the election.

New Jersey has fallen into a habit recently of denying public records requests. From the International Business Times:

The denial letters to IBTimes come only weeks after the Associated Press documented a spike in the number of open records requests that have been rejected by Christie officials. Since 2012, Christie’s administration has paid out $441,000 in taxpayer funds to reimburse open-records plaintiffs who were unlawfully denied access to government records.

“Open records requests to the executive branch have become even more highly politicized than usual,” said Walter Leurs, president of the New Jersey Foundation for Open Government. “These documents are subject to the open records laws and they are supposed to be disclosed within seven days, so this is stonewalling. They know that any lawsuit challenging the denials wouldn’t be heard for 60 days — which is well after the election.”

Charlie Baker has denied he worked for General Catalyst when New Jersey decided to give the firm a contract. But the firm’s website listed him as a partner, and Baker himself called himself a partner in documentation related to his $10,000 contribution back in 2011.

New Jersey Pension Panel Faces “Big Test”

When Chris Christie created the Pension and Benefit Study Commission, the skeptics were quick to point out the politics of the decision.

The panel was formed to recommend reforms for the state’s pension system; but when Christie announced his appointees, some thought its real function was to act as a political shield for the governor, who has said benefit cuts are likely on the horizon for state workers.

The panel is set to release its latest report in November. The editorial board of the New Jersey Star-Ledger says the report will be a “big test” for the panel:

The panel is expected to issue its report within a month. If it offers a lopsided solution that relies entirely on a second round of benefit cuts, its report will be dead on arrival. Democrats would not consider a solution like that, and for good reason.

[…]

Democratic leaders say they will not consider more benefits cuts until Christie restores full payments. That can’t be done without a tax increase, which Christie finds equally repugnant.

The job of this panel is to find the political sweet spot, to come up with a repair plan that both sides might accept. If it fails that test, its report will gather dust and its mission will have failed.

In the end, Democrats will have to accept some new benefit cuts. The state’s fiscal condition is much worse than anyone expected when this deal was signed in 2011, thanks mostly to the sputtering economy. If New Jersey had simply matched the average state since the Great Recession, it would have raised roughly $3 billion more in annual revenues and the 2011 reform would probably have survived.

Democrats can’t expect taxpayers to make up the entire shortfall if there are reasonable cuts to be made. One example: In its preliminary report, this panel noted that the state’s health benefits remain generous, and that some might qualify as “Cadillac plans” under Obama care. The state also treats early retirees more generously than Social Security does. The panel, no doubt, will have a long list of soft spots like this.

Christie needs to face reality, too. He can’t expect public workers to bear the entire burden when the state that has shortchanged these funds for so long, and when Christie himself broke his commitment to do better. And after years of fiscal crisis, there is simply no spare money in the treasury. That means a tax increase is needed.

This is a bipartisan panel, but Christie made all the appointments, a big mistake that undercuts its credibility. If its members want to have impact, they will have to declare their independence by offering a balanced repair plan.

If that leaves both sides unhappy, then the panel will have done its job by telling the hard truth about this unforgiving math.

The panel’s first report can be read here.

Chart: New Jersey Pension Turns In Below-Median Performance

Over the last decade, New Jersey’s pension investments have out-performed those of similar public pension fund. But in more recent years, New Jersey’s performance has fallen off. Although its returns have climbed into double-digits, it hasn’t kept pace with its peers.

Here’s a closer look at the New Jersey’s pension returns over the last four years:

2012 was a down year for nearly every pension fund. But New Jersey managed to perform better than its peers on that occasion. Otherwise, the last four years have been marked by under-performance.

Chart 1 credit: New Jersey Treasury Department

Chart 2 credit: International Business Times

Union Leader Calls Out Christie, New Jersey For Playing “Fiscal Games” That Led to “Self-Made” Pension Crisis

Patrick Colligan, the president of the New Jersey State Policemen’s Benevolent Association, has written an op-ed piece in the New Jersey State-Ledger expressing his discontent with the report recently produced by the state’s Pension and Health Benefit Study Commission.

In the piece, Colligan chastises Christie for playing “fiscal games” with the state pension system:

The Commission should tell the public about the fiscal games going on behind their backs. Before the ink was dry on the pension reform law the governor began using increased employee contributions to reduce employer pension payments. When the Legislature tried to close that loophole and use the extra contributions for pension funding, the governor vetoed it.

Add that to the failure of the state to make its actuarially required pension contributions and you have the making of a self-made pension crisis. It is worth noting if full PFRS pension payments were made during the last 15 years, it would be funded in the mid-90 percent ratio and no one today would be discussing pension reform.

New Jersey does a great job of shifting costs to employees without ever tackling the reason for those costs. Health benefits are a prime example. If the state were truly interested in reducing their health care costs they can take a number of bold steps. First, cut out insurance companies and administer its own healthcare network.

Second, rein in pharmacy benefit manager costs. How much do these PBMs make off the state? Requests for that information are repeatedly denied. Contracts for prescription costs should be required to show the true costs and rebates for the medicines involved and how much of those costs are enriching the companies brokering the deals.

Finally, the state has too many health plan choices with no real cost containment strategies. The State could consider innovative approaches to control costs like State Health Benefits Program-owned patient care centers, and wellness and disease management.

Contrary to popular belief, no one wants a healthy, well-funded and long-lasting pension and health care system more than the people who pay for it and count on it for their retirement. Put us at the table and have an open mind about our thoughts, and the state would be shocked how fast pension and benefit costs are brought under control.

Colligan also spends a good portion of the piece talking about the funding situation of the Police and Firemen’s Retirement System (PFRS).

Read the whole piece here.

New Jersey Pension Hires Deputy Director

New Jersey’s Division of Investment, the department that manages assets for the state’s pension systems, has hired Corey Amon as its new deputy director. From Chief Investment Officer:

The New Jersey Division of Investment has hired a deputy director to help manage $80 billion in state pension fund assets.

Corey Amon joins the fund from the corporate pension world. He has spent the last three years in Miami as assistant treasurer of Ryder System, a Fortune 500 trucking and logistics company. But Amon spent the bulk of his career to date as an asset manager. From 1995 through 2011, he worked at a BMO Global Asset Management division called Taplin, Canida & Habacht.

Amon’s first day at the pension’s Trenton offices is set for October 20, a treasury department spokesperson told CIO. He will report to and work closely with Chris McDonough, the fund’s director and #77 on this year’s Power 100 list. McDonough said he and the team are “delighted to have Corey joining the division of investment.”

McDonough noted Amon “has nearly 20 years of investment experience,” including service as a fiduciary. “We expect him to play an intricate role in all aspects of portfolio and operations management at the division,” the director concluded.

Despite its massive size and consistent outperformance, New Jersey’s pension fund has struggled to hold onto its top investment staff. Its pay packages are thin even by public fund standards, and offer no incentives for performance.

McDonough, for example, earns a $185,000 salary, according to public records.

Amon was previously Assistant Treasurer at Ryder System, Inc. Before that, he was the Director of Research at Taplin, Canida & Habacht where he managed a fixed income portfolio.

New Jersey Senate Moves To Tighten Pension Pay-to-Play Rules

A New Jersey Senate committee on Thursday approved a bill that would broaden the state’s pay-to-play rules regarding pension investments.

The bill intends to further strip out politics from pension investments: the new rules would prohibit the state’s pension fund from investing in firms that have recently made donations to national political groups.

Reported by NorthJersey.com:

The legislation would broaden the New Jersey conflict of interest restrictions that apply to the pension system to cover national party committees and organizations like the Democratic Governors Association and the Republican Governors Association, an agency that’s being led this year by Governor Christie.

The measure, sponsored by Sen. Shirley Turner, D-Mercer, passed the Senate State Government, Wagering, Tourism and Historic Preservation Committee by a 3-1 vote.

That vote came just weeks after the state Division of Investment, which manages the $80 billion pension system, decided to sell its stake in a venture capital fund with ties to a Massachusetts gubernatorial candidate who donated to the New Jersey GOP. The state Department of Treasury is also in the midst of an internal audit of the investment to determine whether state regulations were violated.

But labor union officials in New Jersey have also questioned other political donations made by investment firms that have been hired by the Division of Investment to manage state pension funds, including several to the Republican National Committee and the Republican Governors Association. Both organizations supported Christie’s successful bid for a second term last year, but are not covered by current state law.

Right now, the Division of Investment regulations bar the agency from investing pension funds in a firm only when the fund management professionals have made contributions to New Jersey candidates and political committees within a two-year period.

Any hint of politics and political favoritism should be kept away from the public employees’ pension funds, Turner said.

“The method of investment should be selected based on performance and merit, not because of campaign contributions,” she said.

The bill would also require the State Investment Council, which oversees the Division of Investment, to provide quarterly reports to the Legislature disclosing the fees being that are paid to the investment management firms. Treasury right now does not list those fees on its website as other states do and requires an Open Public Records Act request, which can be a lengthy process, be filed to obtain the information.

“It’s not their money, nor does it belong to any governor or any other political figure,” Turner said.

The Senate drew up the bill after an uproar caused, at least in part, by a recent series of articles by journalist David Sirota about conflicts of interest within the State Investment Council.

Photo by Truthout.org via Flickr CC License

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