According to an article published in NJ Spotlight, New Jersey’s public-employee pension fund investments generated returns totaling 9.06% for fiscal year 2018. Some of the investments that were credited for lifting the fund’s overall performance included U.S. equities and real-estate holdings.
The NJ pension system covers the retirements of approximately 800,000 current and retired public workers in New Jersey. The system uses an assumed rate of return of 7.5% in accordance with a policy enacted under Governor Murphy. However, past returns have averaged in the range of 6.17% to 6.75%. As a result Murphy is considering reducing the assumed rate to 7%, which is more in conformance with past perforce.
Despite the good news of better than expected returns, some fear that this year’s returns will be hard to replicate, especially since the returns for fiscal year 2019 are already 2.5% lower. In addition, some analysts expect the booming stock market to slow down in the near future and reduced market performance will likely put more pressure on the state to continue increasing its contributions to the system.
The strong returns have assisted in increasing the pension system’s overall market value above $78 billion dollars. However, the retirement plan remains grossly underfunded as a result of insufficient and/or skipped contributions from State leadership over the past twenty years. Murphy’s budget increased the state payment in the 2019 fiscal-year budget to $3.2 billion dollars. Although this was a record-high contribution, it is still only 60% of what is necessary to restore the pension system to good health over time. It will take years before Murphy brings the state up to the full payment as he’s following a ramp-up plan established by former Gov. Chris Christie that calls for 10 percent increases each year over a 10-year period. Naturally, the slow pace of contributions is putting more pressure on investment performance, which is causing growing concerns due to the potential market slow down.
Clearly Governor Murphy has taken a step in the right direction to assist in fixing the pension crisis. However it remains to be seen what the Senate and Assembly leadership will do to address the pension and benefit crisis as plans have been floated to switch certain employees from the defined contribution plan that is currently in place to a 401k plan. While the increased investment returns are a nice “shot in the arm”, they certainly can not be counted on at all to fix the crisis that the State still currently faces.