N.J.
pension pool is $25B light
Treasurer partly blames the
shortfall on skipped contributions
Wednesday, May 25, 2005 • BY DUNSTAN McNICHOL •
Star-Ledger Staff
The state-run pension system for 700,000
New Jersey teachers and public employees is underfunded by
at least $25 billion, a massive shortfall that has built up
over seven years, state Treasurer John McCormac said
yesterday.
Speaking to the Assembly Budget
Committee, McCormac said the fund has been hurt as lawmakers
boosted retirement benefits, the stock market collapse
drained more than $10 billion from retirement accounts, and
state officials skipped billions of dollars of scheduled
contributions.
"Bad performance, increased benefits and,
to some extent, the state not making the required
contributions, that leads to a $25 billion shortfall," said
McCormac.
The treasurer said the gap could swell to
$30 billion when the state makes its next assessment at the
end of the fiscal year.
He said the numbers are worrisome to
taxpayers but that retirees should not be
concerned.
"We're a state government entity and we
have to live with our obligations, and it's clear we are
obligated to make the payments to retired teachers, retired
workers and those who will retire," he said. "I'm absolutely
concerned about it, but I'm concerned as a treasurer and as
a taxpayer."
McCormac delivered the sobering pension
numbers on the same day he told lawmakers the state's
revenue picture continues to improve. He said the upcoming
state budget will see a $1.2 billion windfall; the
nonpartisan Office of Legislative Services predicted it will
amount to $1.5 billion.
Even with that extra money, McCormac said
the administration will stick with its plan to include in
the new state budget only a fraction of the contribution
needed to keep the pension shortfall from growing larger. He
said he believes the system can be bolstered by better
investments and a phased-in repayment plan.
In the $27.4 billion budget proposed by
acting Gov. Richard Codey for the fiscal year starting July
1, the state would put $337 million into the seven pension
funds. Actuaries say the state's full contribution should be
five times that amount, or $1.6 billion.
McCormac said the state, which skipped
pension contributions altogether in the late 1990s when a
soaring stock market created surpluses, is trying to
increase its annual contributions at a measured
pace.
"We are slowly phasing in our
contributions," he said.
The state also has been tapping into a
pension reserve fund to help make those contributions, but
that fund will be just about exhausted by the end of the
next budget year. McCormac said projections show the next
governor will have to set aside $1.2 billion for pension
contributions. "It merits attention," McCormac
said.
Even that big a contribution would be
short of the projected $1.9 billion needed to keep pace with
the pension funds' rising liabilities.
Codey highlighted the soaring costs of
pensions and health benefits for public employees during his
budget address in March. Codey is scheduled this week to
announce the formation of a six-person task force to review
the retirement program and suggest changes in funding and
benefits.
Public employees have already rallied
outside the Statehouse to show they will not tolerate any
reductions in their benefits.
Dunstan McNichol covers state government issues. He may
be reached at dmcnichol@starled ger.com or (609) 989-0341.
© 2005 The Star-Ledger. Used by NJ.com with
permission.
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