Sunlight wants to amplify a highly credible report that sounds the alarm on NJ’s public pensions by Andrew Biggs (of the American Enterprise Institute) for the Garden State Initiative (GSI). The bottom line: Because NJ’s pension system remains unreformed, Gov. Murphy’s record $6.9 billion pension payment was “money down the drain” and NJ’s public pensions remain in deep trouble. And that is after the record 27% investment return in 2021 and the gusher of federal pandemic money, neither of which can be counted on in the future. Murphy’s unwillingness to cross his government union supporters and reform public pensions will cost the state and its citizens dearly in the future.
Key points from the report:
The harsh reality is that even with stellar investment returns NJ’s public plans “cannot invest their way out of their unfunded liabilities.” The accumulated debt is simply too large. According to US government methodology (rather than the unrealistic assumptions the state uses), NJ’s combined unfunded pension liabilities are a mind-boggling $186 billion. From 2000 to 2019, NJ’s overall funded ratio fell from 51% to 31%, meaning that NJ only has 31 cents set aside for every dollar it owes – the worst funded pension system in the nation. Making one or even several record payments will not change this reality.
How did NJ pensions end up like this? Our elected leaders made pension promises but did not fund them: During this period, the largest pension plan, the Teachers Pension and Annuity Fund (TPAF), only got 18% of its required funding. But where was the NJEA? As Sunlight has documented, the NJEA was a willing participant political deals that raided pension assets and severely underfunded TPAF, and then successfully fought all efforts at reform. The NJEA has a lot to answer for here.
Murphy’s enormous $6.9 billion pension payment, or over 15% of the state budget, is “money down the drain” because most of it pays for pension debt that was run up in the past. Murphy made the payment to please his government union backers but it is an unsustainable amount because investment returns will come back down to earth, the federal pandemic relief will go away and NJ has the worst structural budget deficit in the nation.
On top of all this, NJ’s retirees are living longer and the ratio of active workers to retirees is declining. For TPAF, in 2001 there were 2.4 workers for every beneficiary and in 2019 there were only 1.3 workers per beneficiary. This means that more and more retirees will be depending on payments from the pension system. Recognizing this, a prudent pension system would be investing conservatively so as to not put those payments at risk. But NJ’s pension system is actually making MORE risky investments in order to earn higher returns. Biggs describes it as: “Let’s just gamble. Let’s just take a lot of investment risk and hope it plays out.” This is a recipe for disaster.
The report concludes that NJ pension system must be reformed and provides several worthwhile recommendations. But Murphy has shown no interest in reform because the most powerful special interest in the state and his main political benefactor, the NJEA, rejects reform. Biggs sums up the consequences: “Further avoidance of responsible reforms by culpable New Jersey leaders only increases the cost for New Jersey taxpayers who already bear the largest tax-burden in our nation.”
Teachers need to know that despite Murphy’s happy-talk their pensions are not secure. They need to demand reforms that make their pensions sustainable for the state. And New Jersey citizens need to know that by neglecting necessary reforms their governor is consigning them to a bleak future.
Our state deserves better from its leaders.