Pensions In New Jersey


In late 2008, the Hall Institute for Public Policy in New Jersey completed a major study of the public pension system in the state. The study traced the changes in investment plans from a very conservative modest strategy to a more speculative policy, especially in the last several years. For several decades, the governors and legislatures also increased benefits, suspended contributions, and generally counted on the increases in the stock market to drive the state’s investment portfolio. When the market was bullish, the fund grew, reaching at one point, $86 billion. But when the market declined sharply, real estate became a problematic investment, and the financial institutions took on so-called toxic assets, the fund dropped to $59 billion.

Governor Jon Corzine criticized, quite rightly, the neglect of the state’s obligations and made a major commitment to fund the full debt. He proposed a courageous policy of massively increasing tolls on some of New Jersey’s major roads to a level that caused a public outrage. He and the legislative leaders backed off. Corzine included monies for the pension system in his budgets, but not really enough money to meet the ongoing deficit. But then facing the major economic dislocations of 2008-2009, the governor encouraged municipalities and other entities to postpone payments to the pension system and cut state payments as well. We have both supported the toll policy and criticized his postponement proposals. For New Jersey it is unfortunately business as usual.

In our first study, The Institute was critical of the State Investment Council’s risk management strategy especially throwing good money after bad in such companies as Lehman Brothers. The chairman of the Council concluded that “the discipline of the market” would work its will, but after suffering enormous losses, the Council had the Attorney General sue the investment house, and lamely sent a delegation to the Governor asking for greater contributions to the pension fund. Governor Corzine’s response was a dismissive observation that a good day in the market would add more money than any state contribution.

The state Investment Council has argued that its returns are comparable or better than those of other major funds:

Fiscal Year Ended June 20, 2008
New Jersey -2.9
TRS of Texas -2.1
CalPers -2.4
Pa Public Sch. -2.8
Connecticut -4.6
Florida SBA -4.4
CAL STRS – 3.7
NYC Employee -9.5

Harvard 8.6%
Princeton 5.6
Yale 2.0

In California, some left wing critics have characterized the Pension Fund as in fact really bankrupt. In New York State, criticisms of the Comptroller have markedly increased. In the latter state, the Comptroller is usually elected—although the current one was appointed to fill an uncompleted term.

In New Jersey it is inevitable that the massive declines in equity will result in expressions alarm from state legislators and state employees. Currently the State Board is made up of appointed unpaid individuals with a paid executive director. Such declines in assets and controversial investments in investment houses and funds in trouble are surely going to result in some changes in control as well as risk strategy.

We believe that with over $50 billion in assets, the state can afford to replace the board of volunteers with a three person paid board of appointed officials named by the governor to staggered, six year terms. One of those appointees would be from a list of three names submitted by public employee associations and named by the governor.

We have previously advocated more staffing in the various investment areas and an honest recognition of the fact that most investment decisions are based on indexing. The staff should look more at targets of opportunity, and should exercise serious oversight of the performance of investment houses, hedge funds and other agents which have New Jersey funds. The magnitude of New Jersey’s losses, the suspension of public payments, and the problems with unique bad investments should not be ignored. A new way of doing business is in order in New Jersey.

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