NJLeftBehind on SPCNJ’s Response to Jersey Jazzman’s Flawed Defense of His Flawed Research
July 23, 2020New Study: NJ’s Roads Among the Worst. But We Have No Money to Fix Them.
July 28, 2020And this was before COVID19 hit.
The US Bureau of Economic Analysis did a laudable analysis of defined benefit pension plans across the country. BEA used a constant set of methods and assumptions so that in looking at the various plans, BEA was comparing apples to apples.
Importantly, BEA used a 4% discount rate for all the states rather than the various rates that the states choose for themselves. Given that these pensions are a guaranteed obligation of the state, the 4% discount rate is a more realistic measure as it is closer to NJ’s actual borrowing rate in the bond markets.
The use of the 4% rate results in NJ’s liabilities increasing by 13%, and thus NJ’s funded ratio drops to 28.2%, the worst in the nation. Pew Charitable Trusts had NJ at 38.4% – also the worst in the nation – using a higher discount rate. This likely means that under the BEA’s methodology, the NJ teachers pension fund is under 20% funded. Again, this is all before COVID19 hit.
Interestingly, BEA found that NJ pension plans are not overly generous. NJ’s benefits as a percentage of state personal income came in at 42.7%, #22 among the states and below the national average. NJ’s benefits as a percentage of payroll – that is, how do pension benefits compare to salaries -come in at 15.3%, 38th highest among the states, and below the national average.
The conclusions SPCNJ draws are: 1) NJ’s pubic pensions are in deep trouble; and 2) NJ’s pension problems were not caused by excessively rich pension benefits but by underfunding the pensions.
Regarding underfunding, SPCNJ is coming out with a new report that will make clear that while the NJEA wants to blame this all on the politicians, the historical facts show that the NJEA was an active participant in the schemes that undermined pension funding. Stay tuned!