STUMP » Articles » Welcome to the Public Pension Watch: Hurray for New Jersey! » 10 March 2014, 05:58

Obamacare has been throwing me off writing about my favorite topic: the self-destruction of public pensions. But the time has come to return, because this is a problem that is becoming more acute (and Obamacare seems to keep getting delayed and dismantled bit-by-bit.)

I’m starting you out gentle, with New Jersey. Actuary John Bury is my go-to source on all things Jersey pensions.

Let’s see what he saw recently

The July 1, 2013 actuarial reports for the New Jersey pension plans are coming out and if you are of a mind to explain to your teacher friends why they will soon be seeing Detroit-type ‘adjustments’ to their pensions just point them to page 8 of the Milliman report for the Teachers Plan – TPAF – (Buck does the valuations for the other 6 plans in the system) titled ‘Risk Measures.’ Search the Buck reports and you won’t even find the word ‘risk’ mentioned but Milliman beginning with their July 1, 2009 report thought it a good idea to mention that…..

THE PLAN BARELY HAS 50% OF THE ASSETS NECESSARY TO ANNUITIZE ONLY (YES ONLY) THE RETIREES WITH THE OTHER 475,000 PARTICIPANTS HAVING LESS THAN NOTHING.

The Risk Measures exhibit on page 8 for the last five years compares the value of the liabilities for retiree benefits to the market value of assets less the Annuity Savings Fund (accumulated member contributions). That percentage as of July 1, 2013: 50.2%.

Read that bolded line. Read it again. It’s not saying that the pension fund is only 50% funded. That would be a big ole ho-hum in the world of public pensions. I’m sure there are some who think 50% fundedness is just peachy.

No, what it is saying is that, the assets owned by the pension fund only covers half the liability to those already retired. Which is far from the whole pension plan.

This is the exhibit Bury is talking about – and the line you want to read is % of AAL for Retirees Covered by Net Assets. You’ll notice that the footnote on that item says the percentage is capped at 100%, but the last time it hit the cap was in 2007. Maybe you can guess why.

To say this is not a good thing is an understatement. At least with the Detroit bankruptcy, it seems those already retired could be fully covered by the fund (but it would involve much larger cuts for those not already retired — also, that whole 13th check thing that retirees may have been counting on…but Detroit is for another day.)

New Jersey pensions are going under, even after the multiple rounds of “reform”. The amount of money to make them whole is not going to come from NJ taxpayers, and there will not be a federal bailout. Mainly because the feds can’t bail them out. The hole is just too big.

The question is mainly the timing of the moment of truth (while the balance sheet looks awful, the cashflows can keep on for some years before hitting zero), and how everybody is going to get hit, including taxpayers. There’s not much going for Jersey other than being cheaper than New York and Connecticut, and once that’s no longer true, why stay? Might as well move to the Dakotas. I don’t think having cheap gas that other people pump is enough of a draw.

At this point, you may be wondering why this is a “gentle” intro to the public pensions death spiral.

That’s because I’m saving up Chicago and Illinois for later.