"Our asset-allocation model was based on the idea that there was no correlation between our alternatives and bonds and equities," says James Marketti, retired president of Communications Workers of America Local 1032, who has been a member of the state's investment council since September 2008. "It turns out they were perfectly correlated."In sum, the state has a huge pension mess, has increased the benefits it is required to pay out, and cut the amount of money it provides to the funds, which have been significantly eroded because of stock market losses.
For all the miscues, New Jersey's pension woes can't be blamed on particularly poor investment results. An examination of state reports shows that the fund's returns have more or less tracked the broad stock market's. The real problem has been the underfunding (emphasis added).
Meanwhile, the obligations keep mounting: Even while they were neglecting pension contributions, New Jersey politicians were sweetening the pot. In 2001 benefits for the state's two largest groups of workers, government employees and teachers, were increased by 9%, creating an additional $4.2 billion in liabilities. In 1999 the state approved a "20 and out" measure that allowed firefighters and local police to collect pensions equal to 50% of their pay after 20 years of service - a perk previously available only to the state police. Benefits added since 1999 have increased liabilities by more than $6.8 billion, according to official estimates.
However, as bad as all that is, the situation is so much worse than even that based on what current Governor Jon Corzine (D) has repeatedly proposed. He actually has called on localities to further shortchange the pension obligations so as to balance the budget.
That's right folks, he has repeatedly called for further underfunding of the pension system by withholding contributions to the pension funds so as to avoid raising taxes and cutting back the amount the state would contribute as the recession hits revenues hard.
Instead of cutting services and workforce so as to bring liabilities in line with revenues, he's playing games around the margins and throwing gasoline on the pension bomb by continuing to underfund the pension fund. Corzine has repeatedly said that underfunding is bad, but the alternative of raising taxes is worse. Curiously, the idea of cutting state workforce and reducing spending never entered the discussion, let alone consideration from Corzine and New Jersey Democrats in general.
Also, keep in mind that the pension mess was staggeringly huge even before the recession - when Corzine did nothing to address the problem. Now, the problem is even worse, and his solutions is to continue underfunding the pension.
The mess will fall to the next governor to fix, along with the dysfunctional legislature in Trenton.