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As reported by nj.com, public pension funds may have gotten a much-needed boost from Governor Chris Christie’s landmark overhaul last year, but reports released show the funds continue to be hampered by the State’s failure to make full payments into the plans. 

Christie and Democratic leaders joined together last year and shifted a greater share of the pension costs on to public workers and cut out cost-of-living increases for future and current retirees. The move helped drive the State’s nagging unfunded pension liability from $53.9 billion to $36.3 billion when they revised 2010 figures, the report shows. 

But the State’s pension hole grew by $5.5 billion by the end of the 2011 budget year, largely because Christie followed in the tradition of his predecessors and failed to make a pension payment, an annual actuarial report on the pension funds shows. Overall, the State has only 67 percent of the money it needs to meet its future pension obligation, and that figure is expected to worsen as the State phases in its full pension payment over the next seven years.

The State was supposed to pay about $3 billion into the pension fund this year, but will only be paying about $480 million. Next year, the State will only pay about $900 million of its $3 billion bill, records show.

By 2018, State taxpayers will begin paying more than $5 billion a year for pensions, roughly ten times higher than the partial payment being made in this year’s budget, according to administration estimates. The tab for local taxpayers will rise by about $600 million by 2020, estimates show.

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As reported by app.com, New Jersey officials continued to move the State’s $71.6 billion pension fund into more aggressive, and riskier, investments, as returns have missed their targets for a decade. The decisions included putting $100 million into a private equity fund run by a big fundraiser for President Barack Obama.

State Investment Council Chairman Robert Grady contends the changes will not only provide better returns, but also make the overall pension portfolio safer by making it less subject to increasing interest rates or stock market swings. Union representatives on the council are opposed and prefer the State stick with a traditional mix of stock and bonds. The council voted 8-3 to take another step toward allowing the State’s money managers to invest more than a third, up to 38%, of the pension funds in so-called alternative investments: private equity, hedge funds, real estate, and commodities. The policy is expected to be approved in May.

Some unions, particularly Communications Workers of America Local 1033 representing rank and file state workers, have fought the effort to change the State’s investment strategy and said the State is taking undue risk with the money. The State faces a collective $53.8 billion unfunded liability in the pension fund over the next 30 years. Governor Chris Christie and Senate President Stephen Sweeney are both proposing sweeping changes to the pension system in an effort to reduce payouts.

The pension funds had gained an average of some 3 percent a year for the past 10 years as stocks swooned in 2001 and the recent financial crisis torpedoed investments broadly. The state pension system is constructed with the expectation that investments would earn 8.25 percent a year. Timothy Walsh, director of the Division of Investment, noted that the state’s pension funds were up just over 15 percent through the first eight months of the fiscal year that began in July, led by outsized gains in the U.S. stock market. Investment officials said the State had made $435 million from private equity firms in the past three months, and they expected greater gains in the months ahead.

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As reported by nj.com, the State of New Jersey is opening its books to the IRS regarding its troubled public employee pension funds to find out if it is in compliance with the federal tax code. In January, the State Treasury Department asked the IRS to review the tangle of rules and regulations that guide the pension plans, currently valued at $70 billion, for hundreds of thousands of state employees and issue what is called a determination letter, essentially signing off on how the plans are being administered.

Former state pension director Fred Beaver said he began seeking IRS approval before stepping down last year because he was concerned about the impact of changes to laws regulating the funds through the years. “I was concerned about an audit, and I wanted to make sure there were no surprises,” Beaver said. 

The federal review comes as the state’s pension plans face uncertainty and increased scrutiny. With a shortfall of $54 billion, they are among the most underfinanced in the nation and at the center of a tug of war between Governor Chris Christie and Democratic lawmakers over how to stabilize the system. Last month, Standard and Poor’s lowered the state’s bond rating to among the lowest in the country, citing the poor financing levels of pension funds.  

After the review, which could take years, the IRS might sign off on the pensions or suggest changes that, if ignored, could result in the agency stripping the plans of their tax exempt status. In short, the agency will examine how the state’s seven pension plans for public employees are being overseen, including how benefits are accrued and who is eligible for them. However, it will not look into how the plans became underfunded by $54 billion.

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On May 12, 2009, Kate Benner published an article entitled “The Public Pension Bomb” in Fortune Magazine. The article addresses how states all across the country, for many years, have been starving their retirement plans. More importantly, however, the article focuses upon how the crisis is playing out in New Jersey, where the bill is coming due and the State does not have the money to pay it.

According to Benner, the New Jersey public pension situation is dire. In June 2008, the State estimated that the plan, one of the nation’s largest covering teachers, state employees, firefighters, and police officers, had $34 billion less than it needed to meet its obligations. Since then the market value of the plan has dropped from $82 billion to $56 billion. A new estimate of underfunding is due in July.

Benner also indicated that, overall, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees. Now, the stock market plunge has wiped out billions of dollars from already underfunded plans. California, New York, and Illinois are among the states scrambling to plug multibillion dollar holes in their pension systems. As a result, these growing obligations raise the specter of higher taxes, diminished services, or even another round of costly federal bailouts.

Lastly, the article traces a 20 year time line to figure out how New Jersey dug itself into this hole. It also delineates the steps that have been and currently are being taken to address the problem. As such, any current or retired New Jersey public safety officer should read this article in order to fully understand the problems with the New Jersey public pension system. The status of the New Jersey public pension system is vital to every resident of this state and especially crucial to public safety employees. Consequently, one must be conscious of this in order to adequately prepare for its financial impact. To read the full article, click on the following link.

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