TRENTON — New Jersey’s government worker pension funds lost a lot of ground last year, as the state’s pension debt rose from $43.8 billion to 49.1 billion, newly released actuarial reports reviewed by NJ Advance Media show.
Even as Gov. Chris Christie made a record-high contribution to the pension system, the state’s unfunded liabilities climbed ever higher, making the outlook for the weakest public pension system in the country appear worse still.
The pension fund lost nearly 1 percent on its investments last year, and the state still contributed far less than what’s recommended. And notably, the state winds up owing more because the treasurer reduced the funds’ long-term assumed rate of return on its investments.
The state’s unfunded liability is a portion of the overall debt. The local side of the system is in much better shape but still $17.1 billion short of what it would cost to pay for future retirement benefits. The combined unfunded liability rose from $59 billion in the 2015 fiscal year to $66.2 billion in the fiscal year that ended in June.
Pensions lost money on investments last year
The Teachers’ Pension and Annuity Fund has only enough assets, $27.2 billion, to cover 47 percent of its liabilities, $57.9 billion. It accounts for the largest share of the state’s unfunded liabilities.
That fund is slated to deplete in about a dozen years. In its actuary report, Milliman said “continued funding at low levels would put TPAF at significant risk of insolvency within a relatively short period of time.”
The state portion of the pension fund for the Public Employees’ Retirement System has $13.9 billion unfunded liabilities, or enough assets to pay 37.8 percent of its liabilities. The local side is funded at 71.4 percent.
The pension fund for police and firefighters also receives both state and local government contributions. The local portion is 74.5 percent funded, while the state portion is 41.2 percent funded.
All of the pension funds’ assets fell while their liabilities increased, driving up unfunded liabilities. The entire pension fund has just over half of the money it needs, 56.5 percent, down from 59.5 percent the year before.
Lower than anticipated salary increases helped reduce the unfunded liabilities, while the lowered assumption rate for pension investments had the opposite effect.
Treasurer Ford Scudder reduced the expected rate of return from 7.9 percent to 7.65 percent, the first revision since it was dropped from 8.25 to 7.9 percent five years ago.
“Moving it downward is consistent with what other states have done and is based upon our analysis of the marketplace and past returns,” a spokesman for the Treasury Department said in a statement.
The higher assumed rate of return made the pension fund look healthier than it really is and didn’t reflect the reality of the state’s investment outcomes.
One pension fund actuary considered the 7.9 percent rate of return “within the acceptabe range of rates although at the high end,” while another deemed it “outside their reasonable range,” according to state financial documents.
The fund has a 6.64 percent five year annualized rate of return, 5.92 percent over 10 years, 5.67 percent over 15 years, and 7.2 percent over 20.
“It conforms more closely to what actual returns have been,” said Tom Byrne, chairman of the State Investment Council, which manages the pension fund investments. “And and a quarter point is a decent-sized move.”
“The timing is never fun, because it basically implies a higher contribution down the road,” he added.
Christie, who will deliver his budget address Tuesday afternoon, recently said the payment he’ll include in the spending plan is $650 million higher than the state is kicking in this year.
Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.
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