STUMP » Articles » Public Pensions Watch: NEW JERSEY HAS A COMMISSION!!!! » 10 August 2014, 21:11

Where Stu & MP spout off about everything.

Public Pensions Watch: NEW JERSEY HAS A COMMISSION!!!!  


10 August 2014, 21:11

I’m sure you’re as excited as I am.

Or as John Bury is.

Why don’t you tell us about this commission, John?

I predicted they would be a combination of five patsies and quislings but apparently Governor Christie could not fill out that roster so he settled on some professional people but raised the number to nine so as to assure that his original intention (having this commission rubber-stamp whatever study the Divisions of Pensions is almost done with) will play out though not through blind obeisance as originally intended but through internal bickering which this commission is certain to have plenty of. The members, per the press release:

Thomas J. Healey, CFA, Partner, Healey Development LLC, former Asst. Sec. of the US Treasury for Domestic Finances under President Reagan. Mr. Healey will coordinate the work of the Study Commission.

Tom Byrne, managing member and founder of Byrne Asset Management; vice chairman of the New Jersey State Investment Council

Raymond Chambers, philanthropist, UN Special Envoy for Financing the Health Millennium Development Goals, founding chairman of the NJ Performing Arts Center

Leonard W. Davis, CFO, SCS Commodities Corporation, manager of private equity, technology, and natural resource companies

Carl Hess, Managing Director of The Americas for Towers Watson and former Managing Director of Towers Watson Investment business

Dr. Ethan Kra, Ph.D., Ethan E. Kra Actuarial Services, specializing in analyzing economic and accounting implications of financing strategies and vehicles for employee and executive benefits

Ken Kunzman, Partner, Connell Foley, co-Counsel since 1978 of the Pension and Welfare Funds for Locals 472 and 172 Heavy and General Laborers Fund of New Jersey

Larry Sher, October Three Consulting, Partner, consulting actuary and member of the senior leadership team for a full service, actuarial, consulting and technology firm that is a leading force behind the reemergence of defined benefit plans across the country

Margaret Berger, Mercer, consulting actuary and Principal for the Retirement Practice of a global consulting leader in talent, health, retirement, and investments, with specific expertise in defined benefit plans, nonqualified plans and retiree medical and life insurance plans
Whether this group is truly non-political is impossible to tell from their bios but what this group of

-four private-plan actuaries
-three investment advisers
-one lawyer; and
-one philanthropist/accountant

appear to be is devoid of any practical experience in working with public sector pensions. I doubt any of them have ever developed a DROP plan or signed off on open amortization or gotten a call from a governor two weeks before a budget was due ordering them to revise the valuation they did two years ago since income tax revenue came in lower than expected and the state can’t make its contribution.

I happen to know something about a couple of the actuaries on the commission, but let’s ignore that for now.

I don’t think “practical experience in working with public sector pensions” is terribly relevant. It’s fairly clear why NJ pensions are on the ropes: they didn’t make full contributions (and no, pension obligation bonds (OF THE DEVIL) are not contributions at all but PURE EVIL), aren’t making full contributions, and will never make full contributions. It doesn’t require having 30 years of public pension experience to see that.

And DROPs and open amortizations are not part of NJ’s problems.

Let’s go to the press release from NJ, though, and see their vision for the commission:

The commission will evaluate how the state can create an affordable and sustainable retirement and health benefits system for New Jersey taxpayers, retirees and current and future public employees.

The commission members are tasked with, among other things, examining the history of the state’s pension and health benefits systems and causes of the current crisis; the work already undertaken by the Treasury Department to devise reform options; reforms in other states and benefits in the private sector; and any and all other relevant factors to assist in developing recommendations for serious, long-lasting reform of the broken entitlements system in New Jersey.

I bolded the relevant part.

I, like Bury, think the outcome is foreordained — it’s to give cover for the fact that Christie is not making the full contributions required under HIS OWN SUPPORTED REFORM.

I know Bridgegate got the NYC media riled up, thinking it bagged a bear, but this is the real scandal.

Because NJ public employees and pensioners will eventually get whacked. They keep thinking they’ll get paid in full, but I say look to Rhode Island. Look to Detroit. And Detroit, at least, supposedly had high fundedness levels to its pension before going bankrupt (though the pension participation certificates (ALSO OF THE DEVIL – because they’re essentially POBs) call that somewhat into question.) There’s also some liability design that goes into it as well, such as COLAs.

I think the rationale that will be given for not paying the contributions in full is: WE AIN’T GOT THE MONEY OF which will then shade into ‘You’ll get the same benefits as those in the private sector get and like it.’

I don’t think any of those involved in the commission will resign, especially not over some commission report. It will take them no time at all to find the “root causes” – as noted, not making contributions is pretty solid and easy to point to. Here commission, just refer to this WSJ graph

I don’t think that requires any fancy math.

The pension was shorted for years. So the “debt” to the pension accrued, as these things do, when you don’t even pay enough to cover the interest costs on a credit card, say, and keep putting more charges on. That’s not even measuring the fundedness ratio — that’s comparing the actual contributions made against what was actuarially recommended. With some very generous assumptions I might add.

You know those pension promises? They were and are lies. Look at that graph. The fact that the pensions were shortchanged for that long means you’re not going to get the promises paid in full. Period.

No, the public employees and retirees won’t get nothing, probably, if New Jersey is allowed to make adjustments to payments before the funds go entirely away. But nothing is a possibility, like the retirees of Prichard, Alabama. I may update the Wikipedia page on Prichard because it’s way out of date — Prichard’s bankruptcy was denied, but the pension was undeniably bankrupt – as in, completely out of cash. That did not happen overnight.

Most public pensions are technically insolvent, given most have assets well below their liability value. But that’s okay, because the taxpayers are good for it… right?


So I’m saying that NJ employees should save their own money in private accounts. And diversify their risk by marrying someone who DOESN’T work for the government.

I’m not all that interested in hearing what the commission has to put out. I highly doubt it will be surprising, and I really doubt that any of the participants will quit in a huff or claim no connection to the ultimate report.

I will be pleasantly surprised if they put it in direct language that indicates that there is an extremely low probability that pension promises will ever be paid in full, so we’ve got to be realistic.

But the law doesn’t allow them to be realistic.

Good thing they’re not tasked in getting thing actually accomplished other than producing a report.

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