NJ pension shortfall grows to $59.3 billion

New Jersey's unfunded pension liability, or the gap between what public employees are owed and the assets available to pay them, grew from $45.8 billion to $53.9 billion over the past year, an increase of 18 percent.

Taken together, the seven pension funds that cover teachers, police officers, firefighters, judges and other government employees had 62 percent of the funds required to pay promised benefits in the long run, down from 66 percent the year before. Pension experts recommend maintaining funding levels of at least 80 percent.

The figures are as of June 30 in each year.

State Treasurer Andrew Sidamon-Eristoff said the figures reinforce the need for the pension and benefits reform Gov. Christie proposed last fall.

"Unchecked, the cost of this impossible burden will fall not just on the taxpayers of today, but on future generations of New Jerseyans," Eristoff said. "It's crucial that we act now to protect public worker pensions and retirement benefits as well as the state's ability to fund critical services. Immediate reform is needed to restrain exponential cost increases and provide long-term stability to the system."

New Jersey's pensions funds were ranked by the Pew Center among the eight most poorly managed in the country earlier this year, and many pension experts believe the state's calculations of its unfunded pension liability grossly underestimate the size of the problem.

According to previous figures, the New Jersey's residents had the largest unfunded pension liabilities per capita in the nation. The state also has an unfunded liability for health care costs of $66.8 billion. To put the unfunded liabilities in perspective, the entire state budget this year is $29.4 billion.

Christie, who has called pension and benefits reform "the most critical issue" facing the country in the 21st century, is calling for public employees to work longer and contribute more to their pensions.

In September, the Republican governor proposed rolling back a 9 percent increase in pension benefits granted to employees and retirees in 2001; the rollback would apply to all future service. All public employees would be required to contribute 8.5 percent of their salaries toward pension benefits. Employees pay from 3 percent to 8.5 percent, depending on their pension system.

Under Christie's proposal, the retirement age for most state workers and teachers would increase from 62 to 65, and early retirement would require 30 years of service instead of 25. Other proposed changes include ending cost-of-living adjustments for retirees' pensions and changing the state's assumed rate of investment returns from 8.25 percent to 7.5 percent.

Christie's pension and benefits reform proposal has been on the back burner for the last several months, though, as the Legislature has focused on measures to help towns rein in property taxes, although legislative leaders have signaled a willingness to address the issue.

The current administration has contributed its share to the state's pension problem by skipping $3 billion in "required" payments to the pension funds in its first budget.

Modest pension reform measures signed into law earlier this year by Christie trimmed benefits for future hires and also requires the state to fully phase in state contributions over seven years, starting next year.

Under the formula, the state would be required to pay in 1/7th of its "required" contribution - as calculated by actuaries according to the parameters established by state lawmakers - in the fiscal year that begins July 1, 2011, 2/7ths the following year and so on until it reaches full funding in seven years.

Governors of both parties dating back to at least Gov. Jim Florio in 1992 have, with the permission of the Legislature, shortchanged the state's public employee pensions in various ways, including skipping some or all of the required payments, changing the way assets and liabilities are calculated, altering the assumed rate of return on investments, increased benefits without figuring out how to pay for them, and changing the length of time the state gives itself to pay its pension liabilities.

Since 2004, state and local governments have skipped more than $14 billion in "required" payments into the public employee pensions.

Christie argues that even had the state paid its full share of contributions over the years, a significant shortfall would still exist.

Public employee unions, whose members have been required to make their payments each year even when the state skipped its share, argue the state should live up to its promises.

Experts say that even with dramatic changes to benefits, the state still needs to quickly ramp up its contributions into the system for the pension funds to remain solvent. Last year, the pension funds paid out $3.18 billion more than they took in.

The state has no official estimate of when the pension funds could run out of money but Joshua Rauh, a national pension expert, estimates that assuming an 8 percent return on investments, New Jersey's pension funds will run dry in 2019.

New Jersey is not alone in facing staggering pension shortfalls, but it stands out for its lack of payments into the pension funds, paying a smaller share of its annual required contributions in recent years than any other state.