N.J. teachers pension fund closer to insolvency
The pension fund for New Jersey teachers fell $2.6 billion more into the red last fiscal year, prompting the professionals who monitor the system to warn for the first time that the state is teetering near a point where it may not be able to pay educators their promised benefits.
The pension fund for New Jersey teachers fell $2.6 billion more into the red last fiscal year, prompting the professionals who monitor the system to warn for the first time that the state is teetering near a point where it may not be able to pay educators their promised benefits.
Along with the shortfall, calculated as of June 30, 2008, actuaries said recent events not factored into their report will only make the picture darker. Those include a 25 percent loss in the state's investments and a new budget plan that calls for giving the fund just 6 percent of what is owed next fiscal year, short-changing the teachers pension system alone by $1.4 billion.
"That really gives us some concern for the fund's long-term ability to meet its obligations," said Scott Porter, an actuary with Milliman Inc.
Another actuary, Bill Reimert, added, "Things can't keep going on too long with not making the statutory contributions."
As of June 30, the fund was worth $36.5 billion in actuarial terms, meaning there was no immediate threat to benefits, but the analysts questioned its long-term outlook.
The report issued yesterday details the problems in the second-largest of the state's seven pension funds for public workers. It is the first of the annual reports set to be released in the coming weeks, and gives a hint of the grim news that can be expected in the other updates.
Pension funding has slipped behind for years, but actuaries have always said benefits were not in jeopardy. The combination of the falling stock market and Gov. Corzine's decision to slash pension payments gave them more reason for concern this year, Porter said.
The Teachers' Pension and Annuity Fund, which covers retirement benefits for about 232,000 active educators, retirees, and beneficiaries, had a $14.1 billion long-term shortfall as of June 30, up from $11.5 billion a year earlier.
The increase in the deficit, like the overall shortfall, is due largely to stock-market woes and the state's failure to pay the amount it owes into the system this year and for years before.
The evaluation does not include the most severe impacts of the recession. In the nine months after the pension snapshot was taken, the state's retirement investments lost 25 percent of their value, Porter said.
In addition, Corzine, facing plummeting state revenues, scaled back the current year's payments to the teachers fund to $166 million. The state owed $1.35 billion.
His new budget proposes paying $95 million, instead of the $1.52 billion that actuaries say should be contributed to start making up the deficit.
In the last six fiscal years, the state has skipped $3.8 billion of payments to the teachers fund, Porter said. Before that, the fund was flush with money from borrowing and soaring stock values and the state was not required to contribute new amounts. So previous governors, for a time, eliminated funding. When new bills arrived, they paid a fraction of what was owed.
"New Jersey has a long history of failing to make required contributions and that has played an important role in the plan's poor funding condition," said Keith Brainard, research director of the National Association of Budget Officers. "They're not alone, but they're worse than most."
Some states, even during boom times, continued paying into their pension funds, Reimert said. In New Jersey and Pennsylvania, on the other hand, state leaders cut pension payments. When bad times hit, it proved difficult to carve out the hundreds of millions of dollars needed to resume contributions.
Now the amounts owed have climbed into the billions, and every year of underfunding adds to the cost of replenishing the system.
"My biggest concern is, will there be an ability to build back up to 100 percent of the contributions required and then stick it out?" Reimert told members of the pension fund board.
A board member who represents teachers worried that the state won't do it.
"I just don't see how the state can raise the revenues to make those kind of payments. It's depressing," Dennis Testa said. The $1.5 billion owed just for teachers this year would consume 5 percent of the entire state budget. Even more is owed for other state workers, policemen, firefighters, and judges.
Steve Baker, a spokesman for the New Jersey Education Association, said the teachers union believed the state would ultimately live up to its contractual obligations.
Corzine has said that cutting pension funding was not something he would normally do, but that it was a choice he had to make to preserve other priorities, such as education and health care.
His administration notes that in his first two years he put more into the system than governors had in 15 years before him.
"While the updated figures are a graphic reminder of the sizable challenge of meeting funding obligations for retired workers, the challenge would be all the more daunting had we not shored up the system through funding policies and reforms," treasurer David Rousseau said in a statement.
Porter said recent pension reforms Corzine pushed had shaved the state's obligation this year by $1 million. The changes will save more money in the future as more teachers are hired under the new terms.
The latest damage report on the largest public worker pension fund, the Public Employee Retirement System, which had an $8.9 billion shortfall in June 2007, is due April 15.