STUMP » Articles » Public Pensions Watch: Why are NJ Pensions So Screwed? » 19 January 2015, 10:43

Where Stu & MP spout off about everything.

Public Pensions Watch: Why are NJ Pensions So Screwed?  

by

19 January 2015, 10:43

Asked:

Some 800,000 people, working and retired, are beneficiaries of New Jersey’s pension system, a collection of funds going deeper into the red.

It’s a system that Gov. Chris Christie, in his State of the State address last week, called “an insatiable beast.”

In boom years, New Jersey leaders shortchanged the pension system, and those “sins of the past,” Christie said, “have made the system unaffordable.”

Fully funding the pension system this fiscal year would cost $3.9 billion, but Christie cut the pension payment to just $700 million to balance the budget — a move that landed him in court, battling an attempt by unions to force him to pay more.

Union leaders accuse the governor of going back on his word to have the state make full payments in exchange for higher contributions from workers. It’s a hot issue in Trenton made even bigger with Christie considering a White House run.

The governor has called for more changes to the system to bring down costs, and over the summer assembled a bipartisan commission to issue recommendations.

That commission, which has yet to release its final report, echoed Christie’s call for additional reforms.

….

What went wrong?

And answered:

Sometimes things are not difficult to understand.

I will be looking at a more detailed explanation (such as all those words in the originally quoted story), but the bottomline is that NJ never made close to the necessary payments to fund the plan since 1996. Almost twenty years.

Think on all those negative amortizing mortgages that were part of the credit meltdown back in 2007-2008. People would make payments less than the interest charged on the mortgage, and so the amount owed would increase, not decrease, over time. Some of the worst were zero-payment loans, where the balance accrued over a certain period (and people thought they could flip the properties), and when payments started coming due, the loan was now much larger than started.

It’s not an exact analogy (after all, the whole point of this is to support actual pension payments coming out, in cash, at particular points in time), but it gives you something of an idea of the math behind the inexorable slide of NJ pensions.

They’re not alone in this behavior, of course.

But more on that in a later post. Also in later posts: the various lawsuits going on (Dallas, Florida, Illinois, New Jersey, Rhode Island….) — 2015 is going to be so much fun for this blog!


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