New Jersey Public Pensions – A Comparative Perspective

By Michael P. Riccards

One of the major foundations in this country, operated by the Pew group, is a center devoted to the states which examines the challenges that impact pensions in the fifty states. The comparative study of public pensions offers conclusions that we in New Jersey would do well to heed.

The study completed in 2008 shows serious problems in the funding mechanisms of most jurisdictions, but generally the states in 2008 had enough assets to cover about 87 percent of their liabilities.  In the last several years, the worth of many of these public pensions (as well as private pensions) has dropped appreciably.  In the case of New Jersey the pension system had once achieved a balance of $86 billion. Now assets are closer to $56 billion.

According to Pew, the total bill coming due in the state is $109.6 billion.  This does not include calculations for other benefits, most notably medical costs, costs that are rapidly rising from the early Pew calculation of $21.6 billion.  Medical costs are complicated by the role that the Federal government may soon play, but we do know that New Jersey has put $0 aside to cover the other benefits costs as of now.

Nationally, the total US bill for pensions and benefits in the public sector is $2.73 trillion over the next several decades.  New Jersey has consistently fallen short with its contributions.  Some states like Georgia and Oklahoma require that any proposed benefit increase be complimented by an actuarial calculation of costs.

One interesting development is the offering of hybrid plans in at least four states that combine elements of defined benefits and defined contribution plans.   The first plan assures the retiree a specific dollar amount. The second, the idea of a defined contribution, is one in which the employer is committed to put into the account a specified amount of money.  Some states like Oregon blend both mythologies.  By 2000, about half of the states’ pensions systems were fully funded, largely due to the strong performance of the stock market.  But the movement to equities and the great recession of the last two years has resulted in huge declines in the worth of state portofolios.

In New Jersey, the state’s legislative representatives proposed replacing the traditional defined budget plan for newly elected and some appointed officials, and prohibited professional service contractors from being part of the state’s pension plan as of January 2008.  The state also approved a 10 percent increase in contributions for some public employees.  Critics have argued however that state changes have not gone into effect in  ways that had been anticipated.

Across the nation, state pension problems have been aggravated by the costs of other post retirement benefits—most especially health care.  With the current national debate over health care and the acceleration costs of medical technology and testing, the issue of guaranteeing medical care for all retirees in the public sector has become extremely complicated.

The Pew study concludes that “New Jersey has done an abysmal job of keeping up with annual funding requests for its pension system.”  In addition, the state is facing a bill of over $21 billion for other benefits, and the costs are growing rapidly.  No funds have been set aside for the latter commitment.  Officials in New Jersey have too often discounted concerns about the pension fund, insisting that the least bit of criticism is partisan inspired.  It is impossible to make that accusation against Pew.  Like it or not, New Jersey is becoming the General Motors of the states: bloated, slow moving, unconcerned about quality, union driven, and unreceptive to change, reform, and readjustment.

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