New Jersey | Pension360

Chart: A History of New Jersey’s Pension Payments

Public pension plans are funded in part by state contributions. But, for various reasons, states often fail to make full payments into their pension systems and instead opt to use the money elsewhere in the budget.

The above chart shows the payment history of New Jersey over the last 20 years. The dark blue bars represent the dollar amount the state was required to contribute to the system; the light blue bars show how much the state actually contributed.

The last time New Jersey paid its full pension payment was 1996. Since then, payments have fallen either well short or been non-existent.

New Jersey’s state-run pension systems were collectively 64.5 percent funded and were running a $47.2 billion deficit as of 2013.

Chart credit: New Jersey Pension and Health Benefit Study Commission report

State Pension Funding Improves For First Time in Six Years

State pension plans have improved their collective funding ratios for the first time since 2007, according to 2013 data.

From Bloomberg:

The median state system last year had 69.3 percent of the assets needed to meet promised benefits, up from 68.7 percent in 2012, according to data compiled by Bloomberg. It was the first increase since the start of the 18-month recession that ravaged retirement assets and led some officials to skip payments as tax revenue sank. Illinois and New Jersey, with the weakest state credit ratings, saw funding levels set new lows for the period.

Buoyed as the Standard & Poor’s 500 index set record highs, the nation’s 100 largest public pensions earned about $448 billion in 2013, the most in at least five years, Census data show. At the same time, governments added a record $95 billion to their plans as they socked away rebounding tax revenue toward obligations to retirees.

“States are playing catch-up — you see more discipline and more public acknowledgment that plans have got to make the required payment every year,” said Eileen Norcross, senior research fellow at George Mason University’s Mercatus Center in Arlington, Virginia.

[…]

The Bloomberg data for 2013, the latest available, underscore the findings in a June report from S&P that said funding levels “have likely bottomed out” and are poised to improve along with climbing stocks.

The S&P 500 index (SPX) rose almost 30 percent last year, the most since 1997, propping up the pensions as the Federal Reserve’s policy of keeping its benchmark interest rate close to zero suppresses debt yields.

But not all states got healthier. The funding statuses of pensions in Illinois and New Jersey have deteriorated further.

Illinois’ funding status dropped from 40.4 percent in 2012 to 39.3 percent in 2013.

New Jersey’s ratio fell from 67.5 percent in 2012 to 64.5 percent in 2013, according to Bloomberg data.

Photo by www.SeniorLiving.Org

Would An Elected Comptroller Ease New Jersey’s Pension Pain?

Fixing New Jersey’s pension system has been the talk of the state lately, and as far as ideas go, all the usual suspects have been proposed: cutting benefits, making full actuarial contributions, transferring new hires into a 401(k)-style plan, etc.

One idea that is rarely discussed is the creation of a model similar to New York: the appointment of a comptroller to oversee and have authority over the pension system.

Under this model, the comptroller would take significant authority out of the governor’s hands regarding pension matters.

This hypothetical comptroller, if he wished, could have overridden Chris Christie’s decision to cut the state’s pension payments. More analysis from NJ Spotlight:

While New Jersey governors and legislatures have been cutting, skipping, or underfunding pension payments for the past 20 years, New York does not have a similar pension crisis because its elected state comptroller has the power not only to set the actuarially required pension payment each year, but also to require Albany’s governor and Legislature to fully fund it, according to a senior Moody’s Investors Service analyst.

New York State Comptroller Thomas DiNapoli is required to calculate the state’s pension payment by October 15 to give the governor’s office and legislative branch sufficient time to include his calculation in the budget for the fiscal year that begins the following June 30. That amount is then required to be paid into the state’s pension systems on or before March 1 — three months before the end of the fiscal year.

“In New York, the state comptroller is responsible for the entire pension system,” Robert Kurtter, Moody’s Managing Director for U.S. Public Finance, explained at a forum on pension funding at Kean University last week. “The comptroller’s power to require full pension funding has been litigated and upheld by New York’s highest Court of Appeals.

“The New York Legislature tried to underfund the actuarially required contribution, but couldn’t,” Kurtter said. “It’s a two-edged sword for New York. Their unfunded liability is low, but they don’t have a choice, even when revenues are down.”

The soundness of New York’s pension system is one of the principal reasons that the state enjoys a AA1 bond rating from Moody’s — one of 30 states in the top two rating categories — while Illinois and New Jersey are the nation’s fiscal basket cases, the only two states with lower-tier single-A bond ratings. While New York was upgraded this year, New Jersey’s bond rating has been downgraded a record eight times under Gov. Chris Christie.

But creating a comptroller position and giving it authority is a politically tricky process – because it involves not only amending the constitution, but also taking away significant power from the state’s governor. From NJ Spotlight:

New Jersey’s governor has more power over state spending than any other governor. New Jersey’s governor has unilateral authority to determine the revenue projections that determine the size of the budget — which Christie has consistently overestimated, as previous governors have when it met their political needs.

New Jersey’s governor also has the ability to make midyear budget cuts without seeking legislative approval — as Christie did when he retroactively changed the pension formula in March and cut $900 million in Fiscal Year 2014 pension payments in May.

Adding an elected state comptroller or state treasurer or establishing an ironclad requirement that the state make its actuarially required contributions to the pension system annually would require a constitutional amendment. The Democratic-controlled Legislature would need the governor’s signature to pass a new law, but not to put a constitutional amendment on the ballot — a strategy it used to bypass Christie on the minimum wage last year and on guaranteed funding for open space this fall.

Last spring, Christie cut $2.4 billion in payments to the pension system and diverted it to help balance the state’s general budget.

Documents Shed New Light on Alleged Conflicts of Interest In New Jersey Pension System

Gov. Chris Christie has shielded his state’s pension system in recent weeks from allegations of conflicts of interest by asserting one thing: the State Investment Board doesn’t have input in pension investment decisions, it only loosely oversees them.

But new documents obtained by the International Business Times suggest that the Council does have an active hand in guiding pension money.

David Sirota writes:

The minutes of the State Investment Council (which Christie appoints, and whose official mission is to “formulate policies governing the investment of [state] funds”), show his appointees not only oversee the state’s due diligence reviews of specific managers but also offer guidance to New Jersey Treasury Department officials about managers. Christie appointees at times cast votes on specific investments and have spearheaded the recruitment and subsequent appointment of the official who runs the state’s Division of Investment.

According to minutes of the State Investment Council, most of New Jersey’s investments in private equity, hedge funds, venture capital and other so-called alternative investments are reviewed by Christie appointees on the Investment Policy Committee (a subcommittee of the State Investment Council). Typically, the minutes show State Investment Council Chairman Robert Grady reports the committee “discussed the investment and was satisfied that the due diligence that was performed was adequate and appropriate.”

Grady was appointed to the council by Christie. He also serves as the Chairman of the Governor’s Council of Economic Advisers, and state documents show he was in regular contact with Christie administration and campaign officials. The governor has described him as a longtime friend.

The State Investment Council debates the merits of specific investments in open session, offering advice to Department of Treasury staffers about the specific money manager being given a New Jersey pension contract. Because the council has influence over the selection of specific managers, Grady and another Christie appointee, real estate investor Jeffrey Oram, have recused themselves from deliberations that involve managers to whom they might have a financial connection.

The documents also reveal a few examples of members explicitly voting to approve (or disapprove) big investments with money managers. From the report:

– On Dec. 8, 2011, Grady spearheaded a proposal to invest as much as $1.8 billion of New Jersey money in the Blackstone Group. State records show “a motion was made by Chair Grady to approve the Blackstone investments,” the motion “was seconded by Council Member Oram,” and the investment in Blackstone was subsequently approved on a 7-2 vote. As IBTimes previously reported, Grady’s private firm was investing in one of the same Blackstone funds though Grady did not disclose that at the time of the vote.

– On July 21, 2011, the council voted on a quarter-billion-dollar investment in Blackstone Resources Select Fund. After a debate, the council voted against a motion to halt the investment.

– On June 11, 2011, the council voted to approve a financial maneuver to facilitate a specific transaction with a firm called RLJ Lodging Trust.

In addition to overseeing and voting on specific investments, Christie appointees oversee the appointment of the state official who runs the state’s Division of Investment.

Christie yesterday offered his first extensive defense against conflict of interest allegations.

Photo by Truthout.org via Flickr CC License

New Jersey Lawmaker: Turn Pension Management Over To Unions

New Jersey Senate President Steve Sweeney (D-West Deptford) offered up a new idea for pension management during an interview on Monday: let unions manage their members’ pensions. The verbal proposal was short on details, but it would certainly be a dramatic change.

From NJ Biz:

“I think we need to turn the pensions over to the unions, where they’re responsible for managing it,” he said. “I think that they would be willing to do that if there was a funding source that made the payments.”

Sweeney said having the public worker unions manage their own pensions would put the unions in a position to succeed — or fail —on their own.

Sweeney says unions, not legislators, would have a better handle on how to manage their workers’ pensions and “should control the future of their retirement.”

“If they screw up the investments, they’re responsible,” he said. “Just because they would manage it, doesn’t mean they’d screw it up. In fact, they’d probably manage it better because there would be no politics in it, because it would be completely removed from politics.”

Sweeney, noting that it was the first time he had publicly voiced the idea, did not offer any additional insight on implementation strategy or plans to formalize the proposal.

Several union leaders, including the director of New Jersey’s largest public union, said the idea was interesting but hard to evaluate given the lack of details. From NJ Biz:

Hetty Rosenstein, state director for the Communications Workers of America, New Jersey’s largest public union, was intrigued by the idea, adding that she was in favor of more “genuine oversight” of pension management. But what that would actually look like under Sweeney’s proposal is yet to be seen, she said.

“Without more details, it’s difficult to respond,” Rosenstein said.

Steve Baker, associate director for public relations for the New Jersey Education Association, the state’s largest teachers union, declined to comment without first having more information.

Gov. Christie’s office hasn’t issued a statement or given a comment on the idea.

Chamber of Commerce Gives New Jersey “F” On Pensions, Fiscal Responsibility

The U.S. Chamber of Commerce released a state-by-state report card yesterday, grading all 50 states on various areas, including education and fiscal responsibility.

New Jersey graded well on education. But it flunked the fiscal responsibility portion of the report card, earning a solid “F” from the Chamber of Commerce.

Why? The under-funded pension system was singled out as the main reason for the failing grade. From the report:

“Grade: F – New Jersey receives very low marks on fiscal responsibility. Only 65 percent of the state’s pension is funded, and the state’s most recent contribution was a meager 39 percent.”

More on the rationale behind the grade, from NewsWorks:

The grade is comprised of two factors: one, the percentage of pension obligations that are currently funded and, two, the amount of money allocated from each state’s 2012 budget for pension fund contributions.

For the first factor, the U.S. Chamber of Commerce calculates N.J.’s total pension funding at 65 percent. A few other states share that large a gap in available funds for pensioners. But no other state made as low a contribution to pension funds in 2012 as N.J.’s paltry 39 percent. Even renowned laggard Illinois managed to earmark 76 percent in funds toward pension obligations that year.

The N.J. Pension and Health Benefit Study Commission reported last week that N.J. has a combined $90 billion in unfunded pension liabilities. That’s three times our annual state budget. This week Fitch Ratings and Standard & Poor’s dropped our bond rating down yet again. There are no quick fixes to this, like millionaire taxes or amnesty programs or even higher contributions from already-strained state workers. Indeed, it’s unclear how to fix this at all.

Ten other states received F’s in the fiscal responsibility category.

View the entire report card here.

Time For New Jersey To Face the “Bitter Truth”, Says Pension Panel Chairman

The chairman of the New Jersey Pension and Health Benefit Study Commission, the panel assembled by Chris Christie to address the state’s pension problems, has published a column today in the New Jersey Star-Ledger.

In it, Thomas J. Healy writes about the “bitter truth” about pensions that people will have to swallow: that Christie’s previous reforms “did not come close” to fixing the problem and now the options for fixing the state’s pension system “are uninviting”.

From the column in the Star-Ledger:

It’s time for New Jerseyans to swallow some bitter truth about our state’s public employee pension and health benefit systems.

The commitment of elected officials over two decades to offer benefits that were unaffordable, coupled with the failure of the state to make required pension contributions when they were due, has landed New Jersey on the edge of a gaping fiscal cliff. Unless the crisis is dealt with firmly and comprehensively, it is certain to become more dire in the period ahead.

[…]

Concerted efforts have been made during the past 10 years to fix the problem. However, significant pension plan reforms in 2010 and 2011 have not come close to correcting two decades of underfunding by both Democratic and Republican administrations in Trenton.

Fortunately, awareness of the need to actively address the problem cuts across both parties. Former Gov. Jon Corzine has acknowledged that “current benefits are financially unsustainable.” And, in the course of naming a 10-member bipartisan commission on Aug. 1 to study the problem and recommend possible long-term solutions, Gov. Christie warned that “if we don’t do more, and we don’t do it now, the state will be forced to make harder choices in the future.”

While this bipartisan understanding is helpful, it doesn’t diminish the complexity of the job ahead, as outlined in the just-released status report of the New Jersey Pension and Health Benefit Study Commission. Indeed, the options for making the public employee pension and health benefits systems fiscally viable are uninviting. Employees have already made concessions, and a tax increase of the size necessary to fund the escalating cost of benefits (in a state which already has one of the highest tax burdens in the nation) is unrealistic. So is any effort to divert revenues from an already tight state budget.

The commission’s second report will propose specific recommendations for reforming New Jersey’s pension system.

The first report, which came out last week, presented an overview of the fiscal situation surrounding pensions but didn’t provide ideas for reform.

John Bury: 4 Things The New Jersey Pension Panel Failed To Say

Over at Bury Pensions, actuary John Bury covers New Jersey pension developments as close as anyone. And there’s been a lot to talk about lately, as the New Jersey Pension and Health Benefit Study Commission just released their first report last week.

But what wasn’t in the report is just as important as what was. While the report served as a great primer on how New Jersey’s pension mess came to be, it fell short on some counts.

Here’s John Bury’s take on what was left out.

__________________

By John Bury

The report did a good job of piecing together available public information but anyone could have done that. What this panel of experts was supposed, and failed, to do is bring their knowledge of the truth of the situation to the general public. Perhaps some did not possess that knowledge and others who did wimped out but here is what should have been in the report:

Actuaries lie

A 54% funded ratio and $37 billion shortfall for the state portion of the New Jersey pension sounds bad enough but people should be aware that these figures are generated by actuaries whose sole responsibility to their politician clients is to keep contribution amounts low. Ask yourself how a plan returning 16.9% in trust earnings when it is assuming 7.9% worsens their shortfall. It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public plan actuaries are paid for when right means higher contributions. Then there is the smoothing canard that the panel completely ignores, quoting the $44 billion actuarial value of assets as real rather than the $39.5 billion market value.

Politicians cheat

$14,9 billion in skipped ARC payments under Christie in cahoots with the legislature who not only get to decide how much they put in but they also get to brag that their selected mini-contributions are the full statutorily required amounts though they get to define what is statutorily required.

Benefits are protected

Hinted at on page 18:

One of the reasons the reforms described above have had little impact on the unfunded liability is that many of them do not apply to all current employees.

And the reason many recent reforms are not applied successfully (witness the COLA fiasco) is that Christie Whitman in 1997 exchanged constitutional protection of those benefits for the ability to reduce contributions to a desired level (i.e. nothing). That needs to be admitted and reforms must include either paying for all those promised benefits in full or coming up with some strategy to get public employees to agree to reduce their benefits voluntarily.

Hybrid plans won’t work here

Though a Defined Contribution plan is the only type of plan that governments, run by political considerations and without independent funding discipline, should be allowed to sponsor moving new employees into these plans would only worsen the underfunding since a valuable input into the ponzi scheme New Jersey currently runs (employee contributions) would be shut off and new hires who are typically younger could wind up getting even higher benefits than under an age-weighted defined benefit system. In the private sector the shift to cash balance plans worked because older employees could be forced (or tricked into) accepting them. It would take a massive amount of ‘creativity’ and will to work the same magic in the public sector where employees have more leverage and politicians are not bargaining with their own money.

New Jersey Investment Council Member Defends Robert Grady, Pension Investments

The New Jersey State Investment Council, the entity that oversees investments for the state’s pension fund, has lately been embroiled in controversy revolving around Council Chairman Robert Grady and allegations of conflicts of interest driving investment decisions.

On Thursday, one member of the Council, Guy Haselmann, defended Grady in a letter to the editor published in the Times of Trenton. The letter reads:

The chairman of the State Investment Council (SIC), Robert Grady, has done an outstanding job conducting the business of the council wisely, ethically, apolitically and with the utmost propriety. Recent criticisms levied against the chairman personally, and against the performance of the SIC and the Division of Investments (DOI) politically, are without merit.

The mission of the SIC, of which I am a member, is to provide policy and governance oversight of the DOI. In other words, the SIC does not make investment decisions or select outside managers; rather, it verifies that procedures and investment parameters are met, with the goal of maximizing return per unit of risk.

Disagreements or complaints regarding the governor’s stance on pension reform are matters completely separate from the management and oversight of the pension’s assets. Public input is always welcome; however, baseless attacks and misinformation disseminated via blogs and other means interfere with the timely and efficient work of the DOI and the SIC, and thus does a disservice to all involved, and especially to the 767,000 beneficiaries of the New Jersey Pension System.

The pension fund returned 16.9 percent in FY 2014, which ends June 30, well above benchmarks and the actuary return assumption. This is testament to the successful oversight and fiduciary duties of the SIC and the DOI.

Pension360 has covered the ethics complaint filed by a union over the alleged conflicts of interest.

Reporting by David Sirota sparked the controversy. His pieces on the topic can be read here.

New Jersey Pension Commission Releases First Report

It came a little behind schedule, but the New Jersey Pension and Health Benefit Study Commission released its preliminary report yesterday.

This first report was all about identifying and detailing the causes and current state of New Jersey’s pension funding shortfall. As such, no recommendations were made for fixing the system.

Although the report, notably, did not name Chris Christie, it did lay a portion of the blame on politicians for creating the pension mess. From NorthJersey.com:

The report in part blames politicians for failing to properly fund the pensions and siphoning surpluses during robust years resulting in a $37 billion unfunded liability in the state pension funds.

“While high benefit levels are one driver of unfunded liabilities, the lack of state contributions is a critical contributing factor,” the report states. “Put simply, if the state cannot find the economic means and discipline to consistently fund its pension obligations, the system will fail. The funding decisions over the last twenty years are telling examples of bipartisan contribution to fiscal distress.”

The report also said that Gov. Christie’s 2011 pension reforms didn’t sufficiently address the system’s problems.

Matt Arco of NJ.com put the report’s talking points more succinctly:

1. The looming unfunded liability is massive

2. Retiree health care costs are massive (and unpaid for)

3. Blame can be spread across the board

4. Failure to fix the problem will cost millions more

5. The 2011 reforms weren’t enough

The full report can be read here.

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