Deficit
in N.J. pension fund is ballooning
Trustees told shortfall, up to
$2.7B, may be headed into taxpayers' laps
Thursday, May 19, 2005 • BY DUNSTAN McNICHOL •
Star-Ledger Staff
The pension system for New Jersey's
public employees has fallen so deeply into deficit, its
trustees "should see flashing lights," an actuary told the
trustees during his annual update on the financial health of
the $27 billion pension plan.
"It is really eroding," George Lovaglio,
consulting actuary with Mellon Financial, told the board of
the Public Employees Retirement System, the second-largest
of the state's seven retirement funds.
The fund, once flush with assets that
amounted to 114 percent of the benefits it has promised to
working and retired state employees, now has only 85 percent
of the amount needed to meet those long-term obligations,
Lovaglio said.
Local government employees also are in
the system, and the fund has assets valued at 96 percent of
what will eventually be owed to those workers.
In all, Lovaglio said, the entire system
has an projected deficit of $2.7 billion -- almost five
times the liability of $593 million reported a year
ago.
"I've heard better reports," said board
member Ned Thomson.
The shortfall doesn't imperil the pension
checks being sent to retirees, Lovaglio said, but it will
soon impose a heavy burden on taxpayers. To keep the system
solvent, he told the trustees, "significant increases in the
required contributions are going to be coming up in the next
couple of years."
The report is the latest analysis to show
that the pension funds set up to bankroll the retirements of
thousands of New Jersey teachers, public employees,
firefighters and police officers are becoming dangerously
underfunded.
Using a complicated formula to project
future growth, the fund is currently valued at $27 billion:
$10.7 billion for state workers and $16.4 billion for local
workers. In terms of cash actually on hand, Lovaglio said,
it has $9 billion, just 69 percent, of its $12.6 billion in
obligations to state government employees; and $13.5
billion, or 79 percent, of its $17 billion in obligations to
local workers.
The financial problems are the result of
a combination of increased retirement benefits, deferred
state pension contributions and the collapse of the stock
market, which has cost the system billions of dollars in
anticipated earnings since 2000.
Since 1996, the state has contributed
virtually nothing to the Public Employees Retirement System
while making small payments into other retirement
funds.
In his budget address in March, acting
Gov. Richard Codey warned that the state's payments into the
seven retirement accounts it supports are scheduled to rise
from $337 million in the upcoming state budget to $1.2
billion the following year.
A week later, Fred Beaver, director of
the state's Division of Pensions and Benefits, projected
that, without changes, the state's full bill for employee
pension and health insurance costs will account for more
than one-fifth of all state spending by 2009.
But yesterday Lovaglio said even those
plans for gradually boosting contributions into the Public
Employees Retirement System will not keep pace with its
growing liabilities.
Lovaglio said the state and local
governments enrolled in the fund need to begin depositing at
least 5 percent of what employees in the system currently
earn to cover the system's costs.
That would have amounted to about $500
million last year -- a year in which local governments
actually contributed only $57 million and the state just
$463,342. This year's contributions are scheduled to be only
slightly higher.
Representatives of public employees
unions, who earlier this week staged a rally to counter
suggestions that their retirement plans are becoming
unsupportable, said yesterday's report shows the state has
failed to meet its obligations to the retirement
program.
"I would say that the failure of public
employers in the state of New Jersey to make any
contributions to the pension funds since 1996 in order to
pay for their escalating budgets while cutting taxes has
caused this," said Jim Marketti, president of Communications
Workers of America Local 1032, the state's largest public
employees union. "Now they are trying to unload it onto the
backs of public employees for their (the employers')
malfeasance."
Yesterday's analysis covered only the
Public Employees Retirement System, which bankrolls
retirement benefits for 303,000 active and retired workers
in state and local government. Last year that system paid a
total of $1.5 billion in benefits to 117,000 retired
members.
The state's other retirement systems
include another 400,000 working and retired employees, and
face similar shortfalls.
Dunstan McNichol covers state government issues. He can
be reached at dmcnichol@starledger.com or (609) 989-0341.
© 2005 The Star-Ledger. Used by NJ.com with
permission.
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