Guest Post: Jersey’s Jitters: An Omen For Public Plans?

Submitted by Leo Kolivakis, publisher of Pension Pulse.

From Big Blue’s pension blues, we go to public sector pension blues. Bloomberg reports that New Jersey’s pension asset value dropped 19% last fiscal year:

New Jersey’s pension assets fell 19 percent during the fiscal year that ended June 30, the board overseeing the funds said.

The decline in asset value, to $63 billion on June 30 from $78.2 billion a year earlier, adds stress to a retirement account that was underfunded by about $34 billion at the start of the fiscal year. The fund covers about $6 billion in benefit payments each year.

“Tough year,” William Clark, director of the Division of Investment, told members of the State Investment Council today. Clark said the losses are not as severe as those suffered by other public pension funds. “At the end of the day, our numbers will come out at the top of the range for public funds,” he said.

Actuaries who calculate the health of the fund each year assume the state’s investments will earn 8.25 percent annually. Taxpayers eventually are required to make up any difference between actual earnings and that assumed rate. In the fiscal year that ended June 30, the investments posted a negative return of 14 percent, Clark said.

Last year was the second in a row that the fund’s assets declined in value. The fund’s losses came even after gains since February, when the value reached a low of $56.4 billion.

The investment losses are compounded by a decline in pension contributions by the state and local governments.

Governor Jon Corzine, grappling with a growing budget deficit, cut pension payments to $263 million last fiscal year and plans to contribute about $150 million this year. Actuaries said the state needed to contribute $4.7 billion over those two years to keep pace with the funds’ rising expenses.

In addition, the state this year allowed local governments to postpone up to $584 million in payments they were scheduled to make into the fund in April.

As you can see, the health of public plans isn’t any better than that of private plans. The only difference is that taxpayers are on the hook for public plans.

Moreover, New Jersey isn’t the only one with that ridiculous 8.25% required actuarial return. Governor Corzine, an ex-Goldman Sachs alumni, knows that in a deflationary world such rosy projections are pure pipe dreams.

Are Jersey’s jitters an omen for public plans? You bet they are. Governments around the world are grappling with seriously underfunded public and private pension plans and there are no real solutions to deal with global pension tension.

As I write, there is a mini heat wave going on in Greece, but I am more concerned with the rising temperature of the pension pandemic. Oh well, back to swimming, tanning, eating amazing Cretan food, and reading Henry Miller’s novels. Not sure if I am coming back to Montreal.

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  1. Blissex

    «Governments around the world are grappling with seriously underfunded public and private pension plans and there are no real solutions to deal with global pension tension.»

    But they did have a solution: a rentier-friendly economy for most voters, with massive capital gains on most assets owned by retirees, to be paid by ever greater numbers of immigrants, and the same also providing cheap labour to drive down the costs of the services bought by those retirees.

    A plantation economy where each retiree lives in a McMansion on the hill served by many brown skinned labourers paying top prices for their rents, and being paid bottom wages for their work.

    That did not work out too well…

  2. Brick

    I am expecting an outcry from business as the rules for how long you have to make up the deficits in public pensions are changed. The same rules will not of course be applied to private pensions, hence the outcry. This off course is just kicking the can down the road one more time. Either the bill will eventually have to be paid by the coming generation or public pensions will be drastically cut. Failing that significant devaluation of the curency and bailouts from central government seem to be the only options.

  3. Skeptical Economist


    You left out

    "and where the immigrant underclass is dazzled with ever greater dreams of wealth from a subprime fueled housing bubble that makes them full participants in the American Dream"

    I guess that part didn't work out real well either.

    The Bush/Blair/Clinton economy in a nutshell.

  4. Kid Dynamite

    Leo – Question for you:

    it's clear to me that one of the major problems GM had was their pension liabilities. Regardless of the restructuring of there CURRENT liabilities – have they modified the benefits for new and future employees, so that they won't have this problem again in 20years? In other words, are they still offering the same extensive benefits to employees?

  5. skippy

    How much does pensioner (die off), 10, 15 umm 20 year factor in. Can they muddle around that long and let nature fix it for them?

    In Pacific Islander cultures, after a big cyclone (reduction in Islands capacity to support population), many would just jump in a canoe never to return.

    Leo, the winters back home must be murder for you. Did you just paddle to your new tropo home?

    Skippy…wink, wink.

  6. Leo Kolivakis

    @Kid Dynamite,

    If you do a search on my blog (upper right hand corner), you will see that I have written on GM's pension fund. For years, they were at the forefront on investing in alternative investments like hedge funds, private equity and real estate. Then, in 2008, all these alternatives got clobbered along with stocks. I read that their pension assets are good for 20 years…only problem is that they need to cover 50 years. They have cut benefits and will likely cut more as they resurface from Chapter 11.


    With MS, summers in Montreal can be brutal (high heat and high humidity). Winters in Montreal are beautiful but too cold and way too long. I love the Fall season in Montreal, one of my favorites. But every time I swim in the seas of Greece, I feel a lot healthier.

    Sometimes I wonder if the North American rat race is worth all the headaches that come along with it.



  7. skippy

    @Leo…mabe its time to go with he flow. I've done the gault-A and experience anxiety upon impending return.

    Your experience and wisdom can travel the length of this world via the net…so people like me can learn a bit more and adjust our behaver accordingly…whilst you get a nice tan.


    Skippy…good guys should see some rewards for their efforts eh, may you be rubbed with scented oils, which bring thoughts of yesterdays, man of the old code.

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