|1-28-14 Report paints dire picture of NJ pension system|
State Street Wire - Report paints dire picture of N.J. pension system TRENTON - Despite public worker pension/benefit reforms enacted in 2011, a new report says that unless employee and employer contributions are increased, along with incorporating other changes, the pension fund eventually will likely become insolvent in 15 to 20 years...
State Street Wire - Report paints dire picture of N.J. pension system
TRENTON - Despite public worker pension/benefit reforms enacted in 2011, a new report says that unless employee and employer contributions are increased, along with incorporating other changes, the pension fund eventually will likely become insolvent in 15 to 20 years.
If New Jersey makes no progress on dealing with its pension deficits, said report co-author Richard C. Dreyfuss, “nothing is imminent. It’s not going to be insolvent tomorrow, but in 15 to 20 years, there is an increasing likelihood that it will be insolvent or unable to recover.”
The report, prepared by the nonpartisan Common Sense Institute of New Jersey, comes on the heels of Gov. Chris Christie’s State of the State Address earlier this month in which he said that meeting the nearly $1 billion increase in pension and debt service this coming fiscal year would mean sacrificing programs in education, public safety and health care.
Immediately after that address, Democratic leaders in the Legislature vowed that the pension payment would be made this year.
Yet the report released today paints a dire picture of New Jersey’s financial situation, one that was decades in the making and one which – despite the reforms of 2011 that put the state on a seven-year road of increased contributions – will have consequences and require difficult choices for years to come.
“We’re heading into unknown territory,” said co-author Steve Malanga. “New Jersey’s pension system relative to its economic strength is still considered the second or third worst in the country.”
Some of the lowlights:
*The consequences of years and years of underfunding are coming home to roost, the authors said. In fiscal year 2003, for example, actuaries estimated the state needed to contribute $2 billion to the pension funds but instead put in $450 million.
“They did this over and over again,’’ Malanga said.
*Whereas states generally want to spend as low as 2 to 3 percent of their budgets on pensions, New Jersey could be facing expenses of 13 to 15 percent on pensions.
“Pensions costs alone may very well eat up 60 to 70 percent of the additional tax collections New Jersey expects to gain,” he said.
*The 2011 reforms allow New Jersey to amortize current and future deficits over a 30-year period, and each year can begin a new 30-year period.
*Cost of living adjustments, done away with in the 2011 reform, could possibly be reinstated once plans attain 80 percent funding, and that could add another 15 percent to the liability.
The authors pointed out that if plans were closed tomorrow, there would be approximately $128 billion in obligations but assets with market value of only about $56 billion.
The Institute offers some solutions, cautioning that there is no easy way out at this point.
“Defined benefit plans and politics are a toxic combination,” said Dreyfuss, recommending among other things changing to defined contribution plans, increased transparency so taxpayers know what to expect, and assuming a more realistic interest rate.
In addition to reforms in funding and design of the pension plans, Dreyfuss said, “Ultimately you have to raise taxes or take revenues from other line items.”
Amid the doom and gloom, thought, the authors had praise for this administration and Legislature.
“This Legislature and this governor made large strides,’’ Malanga said. “They’ve probably done some of the toughest work in the country, but part of the problem was the hill was so hard to climb. They did what was politically feasible (in 2011). They’ve been far more responsive than any other Legislature and governor in the past 15 years. But the hole is so enormous.”
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