Unfunded NJ Pension Liabilities Swell

New Jersey’s public pension deficit swelled 13% to $47.2 billion in fiscal 2012 as the state continued to make partial contributions to its retirement plans.

The system had about 64.5% of assets needed to cover promises to current and future retirees as of July 1, 2012, compared with 67.5% a year earlier, when the gap stood at $41.7 billion, according to data posted on the state Treasury Department’s website. 

“It’s getting to be an issue” for investors, Dan Solender, director at Lord Abbett & Co. in Jersey City, told a Bloomberg reporter. “They’re making reforms, which is good. But that liability is still growing.” 

New Jersey’s pension shortfall reached $53.9 billion in 2010 after a decade of expanded benefits and skipped payments. The gap narrowed to $36.3 billion after Governor Chris Christie signed bills that boosted contributions from employees, raised the minimum retirement age for new workers and froze cost-of- living adjustments for retirees. It swelled when Christie skipped a $3 billion pension payment in fiscal 2011. 

Christie, a Republican who took office in 2010, signed a law that year requiring the state to make one-seventh of its pension contribution in fiscal 2012 and then raise the payment each year until it reaches the full annual amount in 2018. 

Widening Deficits 

“The unfunded liability, even under the reforms, is going to increase because of the way we’re staging our pension payments,” the governor, recently explained to reporters. “We’re falling behind by a heck of a lot less than we were in the years before I got here, when we were making no pension payments.” 

Christie’s proposed $32.9 billion budget for fiscal 2014, which begins July 1, includes a record $1.67 billion pension payment. While that’s the largest contribution in state history, it’s still less than half -- three-sevenths -- of what actuaries say it should be, the governor said. 

New Jersey’s seven public-employee pensions cover more than 780,000 working and retired teachers, police officers and government workers, and had assets with a market value of almost $74.4 billion in July, down 3.2% from a year earlier. The teachers’ plan had the biggest deficit, widening 12% in a year to $21.4 billion, or 59.3 % of needed assets. 

Cost Pressure 

“It’s not really surprising,” said Solender, whose company manages about $19.5 billion in assets. Still, he said that because of the deficits, the state may face mounting costs to borrow in the $3.7 trillion municipal market over the long term. In the short-term, the state’s biggest risk is that the growing pension gap may lead credit-rating firms to lower the state’s scores, currently fourth highest. 

“The shortfall is far less than it would have been without pension reform,” Bob Grady, chairman of the State Investment Council, said yesterday by telephone. “It has long been projected that the funded ratio would decline over time in the near term before it turned back up.” 

To contact the reporters on this story: Elise Young in Trenton, New Jersey, at eyoung30@bloomberg.net; Terrence Dopp in Trenton at tdopp@bloomberg.net.