New calculations troubling for New Jersey pension system

New calculations show that the pension fund covering retirement benefits for most of New Jersey’s public employees is projected to go broke in a decade, not the 30 years officials had estimated just months ago.

The fund that covers retirements for judges has less than 10 years.

And the largest of New Jersey’s pension funds, the one for teachers, will run out of money in 13 years.

The actual values of the pension funds have not changed, and the investments are still growing at rates much better than managers had predicted. What did change was the formula used to account for how much money will be needed to cover benefits for future retirees. When the impact of that change was made public in a Wall Street analysis last month, the differences were stark.

The new projections are not the most conservative, but experts say they are more realistic than those New Jersey had been making before it switched to the new accounting method. But they remain only estimates, and a number of factors could change the depletion dates, including how much money is deposited in the system in the future and whether investments can beat the anticipated |returns.

Oddly, both the Christie administration and the unions fighting in court to force the governor to restore billions in payments to those funds have embraced the new figures.

Christie believes these new figures, called “depletion dates” by analysts. They reinforce his view that reforms to benefits and the pension system as a whole are needed on top of changes that were made in 2011.

To the unions, these time frames for when the funds might run dry show exactly why the state should no longer be allowed to skip its promised annual payments.

The impact of the new figures on the court case is unclear, but for Christie the stakes are high. The judge could order the state to come up with the money to properly fund the pension system, which could be several billion dollars. That would mean making deep budget cuts or significantly raising taxes.

States by law cannot go bankrupt, so if the pension funds run out of money, the full burden of paying out benefits would shift to state taxpayers.

Christie is awaiting final recommendations from a bipartisan commission he impaneled in August to review the employee benefits issue.

The panel released an initial report in September that said every New Jersey household would have to write a $12,000 check to cover the pensions owed to the state’s public workers. And that bill comes even as the pension system has made up some ground in recent years thanks to strong returns on the investment of assets, which now total $80 billion counting local government funds.

Treasury has started to use a more realistic accounting system to keep tabs on the health of the system, which covers the retirements of roughly 770,000 current and retired public employees in New Jersey.

Wall Street ratings agencies have lauded the new accounting system for its more realistic assessment of asset values and long-term liabilities. But the change also revealed some stark new numbers. New Jersey’s pension assets now cover only 32.6 percent of obligations to workers, dropping from 54.2 percent last year, and the state’s unfunded pension liability grew dramatically, from $37.3 billion to $82.7 billion.

Thomas Healey, the leader of Christie’s study commission, said the panel anticipated the new figures because it knew states were required to begin using a more conservative accounting method.

Still, he said the numbers are noteworthy.

“We’re dealing with an even bigger problem than the one we just called dire two months ago,” Healey said.

He also said it’s too soon to say exactly when the panel would release its final recommendations but added that it could be by the end of this month.

Unions, Christie battle

Christie administration lawyers argued in June that cutting scheduled pension payments to balance the budget would not significantly harm the system because it would be at least three decades before the system would be in danger of becoming insolvent.

“The pension systems are not on the verge of an imminent collapse; they are projected to continue providing benefits to retirees for at least the next 30 years,” state lawyers said in a legal brief.

But Treasury released projected “depletion dates” for the various funds that make up the state pension system on Nov. 25 that depict a much different timeline.

Six of the seven funds that make up the state portion of the pension system will go broke by 2027, Treasury revealed in a bond disclosure. And one of them, the fund for judges, has just seven years.

Christie’s spokesmen referred questions about the new figures to Treasury, where spokesman Chris Santarelli said they underscore “the urgent need for additional, aggressive reform.”

But the unions who filed suit against the state to block Christie’s pension cuts argue the new numbers show there is now a desperate need for the state to cover its obligations.

“Regardless of how the liability is measured, the state’s record of underfunding its annual contributions to the pension system is at the root of its deterioration,” said Dominick Marino, president of the Professional Firefighters Association of New Jersey, one of the unions challenging Christie’s pension cuts.

Superior Court Judge Mary Jacobson ruled in late June, in the final days of the last fiscal year, that because the state constitution requires a balanced budget Christie had the authority to reduce a planned pension payment by nearly $900 million to close a budget shortfall.

But the unions are also challenging Christie’s plan to reduce a scheduled $2.25 billion payment for this fiscal year to $681 million to again solve budget problems. The latest legal briefs in the case are due over the next two weeks and oral arguments are scheduled to be heard in Trenton on Dec. 19.

A spokesman for the state Attorney General’s Office, which is defending Christie’s pension cuts in court, declined comment about the case.

But administration lawyers wrote in a brief submitted to the court in September that the judge does not have the authority in this case to order Christie to appropriate more money for the pension system.

Givebacks vs. funding

New Jersey last made changes to public employee benefits in 2011, passing a law that increased employee pension contributions and pushed back the age of retirement for many workers.

Union representatives maintain more givebacks will have little impact if the state does not make its annual contributions.

“The solution is for Governor Christie to quit breaking the law he signed and make the legally required pension payment, not berate public workers who have increased their contributions, can’t skip payments and whose benefits have been cut,” said Charles Wowkanech, president of the New Jersey State AFL-CIO, one of the unions challenging Christie is court.

So far, Jacobson has not said when she will issue a ruling.

But state Senate President Stephen Sweeney, D-Gloucester, said he thinks the unions will prevail. Sweeney said he and Christie committed the state to a firm seven-year pension payment schedule when they also agreed to cut benefits for workers in 2011.

And Sweeney, who many believe is preparing for his own run for governor, said he is holding firm against any new benefit cuts.

“You have to make the payments first,” Sweeney said. “At the end of the day, this is an obligation just like any other obligation. This is people’s retirements.”

These new figures also present political implications for Christie, a Republican who took office in 2010 and is now considering a run for president in 2016. Though Christie has made pension reform a signature issue, the new figures show the pension system remains a trouble spot, along with the state’s sluggish economy and frequent budget shortfalls.

“The political motivations of all the players involved makes one less confident that a deal is going to be struck,” said Ben Dworkin, a Rider University professor and director of the Rebovich Institute for New Jersey Politics, adding that this time there seems to be little incentive for compromise.

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