State's Failure To Make Full Pension Payments Hinders Fund

Posted on January 25, 2012 by Donald Barbati

 

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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Pensions To Strain New Jersey Revenues

Posted on July 18, 2011 by Donald Barbati

 

As reported by mycentraljersey.com, New Jersey’s new pension reform will save state and local governments millions of dollars now and billions of dollars over the ensuing decades. But then there is the hard part: actually paying the pension contributions for nearly 800,000 state government employees and retirees. Although New Jersey will have to pay less than it would have to without the changes, the state revenues still will have to grow by at least 3 percent a year simply to cover the added costs for increasing payments, a New Jersey Press Media analysis shows.   

Even if state revenues rise by 5 percent a year, state pension contributions still will consume nearly half of that extra revenue. That will put pressure on available funds for aid to schools, worker salaries and a host of social and other programs. Keith Brainard, research director for the National Association of State Retirement Administrators, said New Jersey’s big mistake was abandoning annual required contributions into the pension system in the late 1990s. “Once the money is gone, the revenue stream must be recreated,” he said. “They’ve taken a big step with the reforms, but ultimately they will have to find the money to make the contribution.”

State pension contributions must ramp up to $5 billion a year by fiscal year 2018, even under the new reforms. This year’s $468 million bill will double to $1 billion by next July. Because the state had largely missed its pension payments for more than a decade, the so-called unfunded liability for long-term state workers pensions had grown to $37.1 billion last year, along with a $16.7 billion liability for local government pensions. The annual contribution to meet that bill grew too. 

If the state were to pay all it should into the pension system this fiscal year, which began July 1, it would have to pay $3.3 billion. That’s an impossibly large number that would require widespread layoffs, aid cuts, and tax increases to meet. New Jersey did, however, pass a state law that requires it to pay one-seventh of what it needs this year, and increase that until it reaches the full amount in seven years. So in fiscal year 2016, only four years hence, that means the state will pay $3.4 billion into its pension funds. As if that were not enough, Governor Chris Christie’s proposed transportation infrastructure plan calls for the state to use $605 million in the state budget that year.

If state revenues grow by 5 percent a year, about average in normal times of economic expansion, then those two items alone will take up more than half of expected increase. Should tax revenues slip to 3 percent annually, pension contributions and transportation funding alone would soak up all new revenue. That would leave little or nothing for worker salary increases, aid to schools and municipalities and a host of social programs.

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