As reported in BuryPensions, Boston College’s Center for Retirement Research (CRR) predicts that NJ’s largest public pension fund, the Teachers Pension and Annuity Fund (TPAF), will see its funded ratio decline from 39.2% to 23.2% in the next five years, at which point TPAF will have enough money for just 19 months of pension payments. The funded ratio is the amount of assets in the fund versus the amount of liabilities actually owed, so these are low and worrisome numbers, which add up to TPAF’s insolvency in less than seven years.
But the reality is likely even worse. According to TPAF’s actuary, if more realistic return and discount rates are used (according to GASB 67), as of June, 2018, TPAF’s funded ratio was 26.5%, not 39.2%. From this 26.5% funded level, if the assets decline at similar rate (41%), in five years the funded ratio would be 15.7%, not 23.2%. So TPAF will likely run out of money even sooner than the seven years that CRR predicts.
TPAF’s insolvency would be a disaster for the state. Thereafter, the roughly $5 billion of TPAF pension payments will be on a pay-as-you-go basis from NJ’s annual budget appropriations. Due to COVID, NJ is currently facing a $10 billion budget hole. Where will we get the additional money?
Few NJ citizens, including few teachers, realize just how precarious the situation is. We are past the point of arguing over whether pensions are too rich or not. It is plain for all to see that NJ will not have the money to meet these pension promises. The state’s leaders must begin to communicate these hard truths and find a solution before it is too late.