Soaring returns for NJ public-worker pension investments

Preliminary figures show returns were double the assumed target for first half of current fiscal year
Credit: (AP Photo/Mark Lennihan)
File photo: The Charging Bull statue in New York’s financial district

Investment returns for New Jersey’s public-worker pension fund have been soaring in recent months, providing some promising news nearly a year after the start of the COVID-19 pandemic triggered major losses.

Preliminary figures reviewed by members of the State Investment Council during a meeting Wednesday indicated overall investment returns totaled nearly 15% for the first half of the current fiscal year.

Those returns easily topped the pension system’s assumed rate of 7.3% for long-term investment earnings.

New Jersey’s public pension system is one of the nation’s worst-funded, and strong investment earnings can help ease potential pressure on the state budget since taxpayers help fund promised retirement benefits over the long term.

The latest investment returns could also be an early indicator of promising personal-income tax collections, providing another potential boost for the budget in the coming months. That could also make it easier for Gov. Phil Murphy and lawmakers to manage revenue losses suffered since the start of the ongoing pandemic.

Meanwhile, in the 2021 fiscal year so far, revenues from the state Lottery, also dedicated to funding public-worker pensions, have been outpacing last year’s totals, and officials said January is setting up to be one of the state’s best months ever for Lottery receipts.

Returns in last fiscal year were just above 1% 

Pension-fund investment returns barely topped 1% during the 2020 fiscal year, something Department of Treasury officials blamed largely on the economic effects of the health crisis.

The prior fiscal year’s investment performance also fell well short of the pension system’s annual assumed rate of return and was the worst year for fund investments in the last four years.

At the same time, the estimated market value of the pension fund dropped significantly, again because of a pandemic-fueled sell-off. Over the last half of the 2020 fiscal year alone, the pension fund’s value dropped from nearly $80 billion to $76.7 billion, according to Treasury records.

But over the first half of the 2021 fiscal year, which began on July 1, the estimated market value of the pension fund has risen to more than $83 billion, said Corey Amon, director of Treasury’s Division of Investment, during Wednesday’s investment council meeting.

The pension fund’s investment returns, from July 1 through December 2020, totaled 14.8%, easily beating the fund’s assumed rate, according to the preliminary figures. Since the returns for some of the pension fund’s investments are reported with a lag, Amon suggested the near-term gains could be even stronger.

“We are confident that the pension fund has realized a strong recovery following a challenging (2020) fiscal year,” Amon said.

Ten-year average returns are above 8%

Over the last ten fiscal years, returns have averaged above 8%, according to the preliminary figures.

Council member Ted Aronson heaped praise on Amon and other Division of Investment officials for the success of the pension fund despite  the market volatility that was initially set off by the pandemic.

“I think we forget what that really means, and what it means is, tens of millions of dollars of additional assets in the plan,” Aronson said. “My hats off to you for a job well done.”

Earnings generated from long-term investments are just one source of revenue for the pension system, which covers retirement for some 800,000 current and retired workers.

Regular pension contributions also come from active workers and their taxpayer-funded state and local government employers.

The state has been slowly increasing its pension contributions in recent years to reverse the effects of chronic underfunding. The current funding ramp-up began during former Gov. Chris Christie’s tenure, and it has continued since Murphy took office in early 2018.

Despite revenue losses throughout the pandemic, Murphy’s administration kept to the pension-funding schedule as some called for payment holidays. With the approval of lawmakers, the Murphy administration also issued roughly $4 billion in general-obligation bonds last year to help sustain the annual budget.

Tax collections looking good too

Sticking to the ramp-up ensured the state’s regular contributions were made largely on schedule, including as the capital markets enjoyed a major recovery after the initial sell-off.

Meanwhile, the latest state tax-collection figures released by Treasury indicate Lottery revenues have also come in well ahead of last year’s pace. Lottery revenues for December were up nearly 9% year-over-year. They were also up 7.6% through the first six months of the 2021 fiscal year. Those revenues are set aside to fund worker pensions because of legislation Christie enacted in 2017 as part of another effort to address the state’s long underfunding of worker pensions.

Early indications suggest January’s Lottery revenues will also be strong as jackpots for games like Mega Millions and Powerball surged in recent weeks.

“We anticipate that January, which is obviously not finished yet, is going to be one of our best months ever,” Assistant Treasurer Dini Ajmani said during Wednesday’s meeting.