Pension and Benefit Crisis

NJEA LEADERSHIP HAS A LOT TO ANSWER FOR WHEN IT COMES TO TEACHERS’ PENSIONS

They neglected their members’ pensions while taking care of themselves.

When it comes to their pensions, New Jersey teachers have a lot to be upset about. Nearly half of them have significantly reduced pensions.  All of them have pensions that are severely underfunded. How did this happen?

The facts show that in the 1990s and 2000s NJEA leadership made fateful and ultimately disastrous decisions. They bet teachers’ pensions on gaining them the non-forfeitable right to their pension benefits. They took the lead in political deals that allowed “surplus” assets to be substituted for required pension contributions. They irresponsibly enhanced benefits without securing sound funding for them. They looked on while TPAF’s unfunded liabilities climbed to unsustainable levels. They allowed TPAF to deteriorate until insolvency threatened.

And then they were forced by political reality to accept the Chapter 78 reforms because the pension system was in crisis. Yet the non-forfeitable right ensured that most of the pain was inflicted on prospective teachers in the form of reduced pensions.

Meanwhile, using the dues of those very same teachers, NJEA leadership made sure their own pensions were both gold-plated and overfunded. NJEA leadership took care of themselves but not their members. They have a lot to answer for.

EVEN WITH RECORD CONTRIBUTIONS AND STRONG RETURNS, TEACHERS’ PENSION PLAN TREADS WATER

TPAF is still only 34.7%-funded, or 47% including lottery assets.

New Jersey’s largest pension plan, the Teachers Pension and Annuity Fund (TPAF), is not healthy.  Despite the record-billions Gov. Murphy has contributed and the addition of 78% of the state’s annual lottery proceeds, TPAF is still reliant on positive investment returns to avoid having to deplete its assets to meet its annual benefit payments to retirees.

As a result, TPAF is treading water. In FY2021, pension investments posted a record 28.6% return and TPAF’s assets grew by $5 billion. In FY2022, investments lost -7.9% and assets shrunk by -$2 billion.  So despite strong returns of 9.2% in FY2023, assets only grew by $2 billion. Meanwhile TPAF’s liabilities continued to grow by $2 billion a year. The result: TPAF’s FY2023 34.7% funded ratio (the amount of money set aside to pay for future liabilities) was actually lower than FY2021’s 35.5%.

A 34.7% funded ratio is not healthy. TPAF’s internal dynamics are so weak that even with Gov. Christie’s addition of the $9.6 billion lottery asset, TPAF’s liabilities were still only 47%-funded.

Murphy’s state budgets have benefited from large, pandemic-related revenue windfalls that have allowed him to massively increase pension funding, but a deep recession could change the picture dramatically.  Yet Murphy continues to refuse to do the the hard work of restructuring TPAF.  To please his biggest political supporter, the NJEA, he is continuing to pour billions of good (taxpayer) money after bad.  Good for Murphy and the NJEA, terrible for the teachers and the state.

GOV. MURPHY CONTINUES TO FIDDLE WHILE THE TEACHERS’ PENSION FUND BURNS

Even after Governor Murphy spent billions for additional funding, the Teachers’ Pension and Annuity Fund (TPAF) was 33.9% funded for FY2022.  That means that the state has less than 34 cents set aside for every dollar it owes to retirees.  This is a crisis condition.

That’s why a recent Urban Institute study placed TPAF in the “Deep Red” category — as one of the nine worst public pensions funds in America.  TPAF is projected to run out of money in 20 years or less, which would be a disaster for New Jersey.

FY 2022 shows why. Because TPAF is structurally unsound, poor investment returns meant that TPAF had to sell $1.89 billion in assets to meet its annual payments to retirees.  Meanwhile, TPAF’s liabilities continued to climb.  The result was a 33.9% funded ratio.

Yet Murphy continues to refuse to do the the hard work of restructuring TPAF.  To please his biggest political supporter, the NJEA, he is pouring billions of good (taxpayer) money after bad.  Pandemic-related revenue windfalls have allowed Murphy to increase state spending to record levels, but what happens when these windfalls go away?

EVEN WITH MURPHY’S BILLIONS IN CONTRIBUTIONS, ONE DOWN YEAR AND STATE PENSIONS ARE IN TROUBLE AGAIN

Despite Governor Murphy’s happy talk, the teachers’ pension fund (TPAF) is not healthy.

One bad year — pension investments were down -7.9% for FY2022 — forced TPAF to sell $2 billion of assets to meet its annual obligation to retirees.  TPAF is again under 35% funded, which means that 65% of what is owed to retired teachers is not funded. Taxpayers will be on the hook for the shortfall.

Murphy’s pension contributions amounted to over 13% of state budgets inflated by federal COVID aid and record tax revenues.  When those go away, such large pension payments will not be sustainable.

Teachers and taxpayers need to be told the truth.