Politics trumps pension reform in New Jersey….again

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by John Bury

The headlines blare:

N.J towns to save $267M in pension costs thanks to new law

when they should blare:

N.J. towns get another way to avoid paying pension costs thanks to a bunch of idiots making pension policy and a bigger bunch of idiots who take them seriously

Pension costs for 2012 are calculated based on the July 1, 2010 valuation which gives municipalities the advantage of knowing their costs early for planning purposes.  Those costs were supposed to total $869 million for the Public Employee Plan (PERS) and $1,104 million for the Police and Fire Plan (PFRS).  Thanks to a 2011 law change those costs are reduced by $43 million for PERS and $224 million for PFRS.

The $43 million figure is easy.  They multiplied the original contribution amount by .9505 for some reason.  The $224 million reduction for PFRS is not so obvious.  They say it’s due to higher employee contributions but based on the latest valuation report for PFRS adding an extra 1.5% (from 8.5% to 10%) in employee contributions on a payroll of $3.8 billion would only net an additional $57 million and the chart has some towns (Pemberton, Frenchtown, Belvidere) somehow paying more.

In the private-sector actuarial world you are not supposed to consider what happened after the valuation date because if you recognize one factor you would need to recognize them all and basically redo the valuation.  So there might be an extra $57 million coming in from employee contributions but what about the worse-than-expected investment gains/(losses) or the flood of new retirees or the pension padding that continues apace?  All these factors are ignored in the public-sector actuarial world where political expediency trumps sound funding policy….again.

Note: This article was originally published at the Burypensions Blog on Oct. 6, 2011.

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