The State published the actuarial report for the Teachers Pension and Annuity Fund (TPAF), New Jersey’s largest state pension fund.   As of June 30, 2019 and using the more accurate measure that includes TPAF’s large unfunded liability (GASB 67), the TPAF had $22.7 billion in assets and $84.2 billion in liabilities, for an unfunded liability of $61.5 billion.  This is just for TPAF and is before the impact of COVID 19 on New Jersey’s economy and its market investments.  For perspective, the entire state budget is $41 billion.

The so-called funded ratio stood at 27%, an extremely low number and one of the worst funded levels for a public pension in the nation.  It is highly likely that this number will decrease substantially as investment returns disappoint and budget constraints limit the amount of the state’s pension contributions.

Of particular note is the cash flow diagram on page 8 of the GASB report.  TPAF’s net cash flow (which excludes investment returns) for the past ten years has averaged -9.4%.  This means that TPAF is entirely dependent on above-market investment returns to avoid depletion of its assets.  The COVID crisis presents a double-whammy: It depresses investment returns and limits the state’s contributions, making it highly likely that TPAF’s assets will be significantly depleted once COVID’s impact is felt.

Should TPAF’s assets be depleted to zero in the future, the billions of dollars in benefits (currently at $4.5 billion) would have to be paid from budget appropriations.  This would be a nightmare scenario for New Jersey.