SPCNJ recognizes that NJ citizens are rightly concentrating on the devastating effects of the Covid19 pandemic. But having studied NJ’s pension issues for many years, SPCNJ believes that NJ citizens should informed of the facts – even if they are unpleasant and unwelcome.
The state Division of Pensions and Benefits just released its annual report, which provides a snapshot of where our public pensions were on June 30, 2019 – before Covid19. Overall, NJ’s public pensions funds were 42% funded (that is, they had about 42% of the assets set aside to fund the liabilities – a very low number and likely the worst in the nation). The state’s largest pension fund, the Teachers Pension and Annuity Fund (TPAF), was funded at 26.95% – an extremely low level of funding. NJ pensions have been it very hard by the market sell-off. Just today, NJSpotlight reported that lottery proceeds (which go to funding pensions) are down 12% year-to-date and down 30% for March.
How bad is it likely to get? BuryPensions looked at TPAF and accounted for the anticipated substantial investment losses as well as the likelihood that a state budget squeeze will curtail pension contributions. The result: BuryPensions projects that without benefit cuts or a cash infusion, TPAF will run out of assets by 2023-2024. That means that the $4.5 billion in benefit payments will have to be allocated from the state budget – along with $13 billion in retiree healthcare benefits.
Without some sort of federal bailout, we do not have the money to pay for TPAF pension benefits from the state budget unless there are severe service and aid cuts as well as massive tax increases.
Prior to that time, the state bond rating agencies will downgrade NJ (Moody’s has already put NJ on negative watch), which will bring the pension crisis forward in time.