Moody’s Financial Services warned last week that based upon a New Jersey Treasury Bond Prospectus, if the state government doesn’t start properly funding its pension system, a budgetary nightmare will ensue.
The state Treasury Department reported in a recent bond prospectus that the Public Employees Retirement System (PERS) and the Teachers Pension and Annuity Fund (TPAF) “could fully expend their assets as soon as 2024 and 2027, respectively, even assuming the funds meet assumed investment returns.”
“Once plan assets are depleted, the state will have to fund pension benefits directly from its operating budget, driving its annual retiree benefit expenses significantly higher,” Moody’s warned. “For example, benefit payments from TPAF and the state portion of PERS amounted to approximately $4.9 billion in fiscal 2013 (equivalent to about 16 percent of the state's operating revenues), according to plan actuarial valuations. In comparison, combined state contributions to these plans were approximately $878 million that year.”
The Treasury Department’s dire projection was contained in a New Jersey Transportation Trust Fund bond prospectus issued last week.
States are now required to apply more conservative accounting rules adopted by the national Government Accounting Standards Board (GASB) in assessing pension fund assets and liabilities. Based upon those new projections, New Jersey’s unfunded pension liability jumped from $37.3 billion as of June 30, 2013, to $83 billion as of June 30, 2014.
Moody’s said the new projection “indicates New Jersey’s limited time to identify structural solutions to its pension liabilities.”
Under the new GASB standards, the Treasury Department is required to “incorporate employer contribution assumptions that give weight to actual funding in the past five years” — a period in which the State underfunded the ever-increasing actuarially required contribution to the pension system needed to cover future liabilities by $14.9 billion.
The Governor convened a Pension and Health Benefits Study Commission earlier this year after the 3/7 required payment into the system was not made into the system. That 3/7 was mandated by legislation enacted in 2011 that also called for employees to contribute enhanced amounts to their health benefits and also suspended cost of living adjustments for retirees until the plans reached viability (80% funding). The commission is expected to release recommendations in the coming days.