After plummeting at the onset of the pandemic last year, booming investment earnings have helped push the total value of pension fund assets over $90 billion, officials said Wednesday during a public meeting of the New Jersey State Investment Council.
“The results, obviously, have been very favorable,” investment council chairman Deepak Raj said during the meeting.
The potential record-setting investment performance comes as the state has been ramping up pension contributions in recent years to climb out of a huge hole created by past underfunding. It also comes after Gov. Phil Murphy’s administration resisted calls to short state pension payments amid budget problems that were triggered at the onset of the coronavirus pandemic.
Meanwhile, the strong investment earnings could ease pressure on the state’s annual budget since taxpayers help fund promised retirement benefits over the long run. The returns, which were running above 22% according to preliminary figures for the current fiscal year, are easily surpassing the fund’s long-term assumptions.
“We hope that the financial markets will stay strong and our performance will stay strong,” said assistant Treasurer Dini Ajmani.
A well-fed pension fund
The $90.56 billion pension fund covers retirement for some 800,000 current and retired government workers. It is financed with contributions from workers, along with taxpayer-funded payments made by their respective state and local government employers and from revenue that flows in monthly from the New Jersey Lottery.
Last year, in the wake of a pandemic-fueled sell-off, state pension-fund investment returns sagged; Lottery proceeds also stalled as the economy was largely shut down to slow the rate of new COVID-19 infections.
In all, the 2020 fiscal year returns barely topped 1%, according to Department of Treasury records.
The estimated market value of pension fund assets also dropped significantly last year, again because of the sell-off. Over the past 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 preliminary figures for the first 10 months of the 2021 fiscal year, which closes June 30, indicate returns were up by 22.6% through the end of April. Those returns easily topped the pension fund’s assumed annual rate of 7.3%.
Among the strongest performers have been investments in U.S. equities, private equities and emerging markets, officials said.
Best returns in more than two decades
The soaring preliminary estimates for fiscal year 2021 investment returns are the pension fund’s best returns since 1998, and they could eventually set a new record for a single fiscal year, since more recent performance shows gains moving closer to 24%,officials said.
“If these returns were to hold up, they would mark the best returns on record for a fiscal year for the pension fund,” said Corey Amon, director of Treasury’s Division of Investment.
Last year, Murphy stuck to a multiyear pension-funding ramp-up schedule as revenue losses triggered by the pandemic brought on a series of state budget cuts that impacted everything from property-tax relief programs to K-12 school aid.
While some lawmakers called for shorting pension payments to ease the budget challenges, Murphy’s decision to continue the ramp-up plan ensured nearly $5 billion was pumped into the pension fund, counting Lottery contributions, through the course of the 2020 fiscal year. And as the investment returns eventually soared, that planned payment maximized the impact of the upswing on the pension fund.
“The administration’s commitment to ramping up pension contributions has helped bolster value as the markets continue to perform well,” Treasury spokeswoman Jennifer Sciortino said. “As a result, the preliminary fiscal year-to-date investment return and the preliminary market value are both on track to set records for the pension fund this year.
But Murphy, a first-term Democrat, has also faced criticism for issuing nearly $4 billion in long-term debt while initially projecting significant revenue losses for the current fiscal year. Those losses have not materialized. Instead, the Department of Treasury has upgraded revenue forecasts and is now projecting a significant surplus will be carried over into fiscal year 2022, which begins July 1.
Another pension-fund increase planned
Murphy is also planning another pension-funding increase during the 2022 fiscal year, one that would push the state’s annual contribution up to $6.4 billion, counting Lottery proceeds.
The true-interest cost of the long-term debt issued in response to the pandemic last year was just under 2%, which was well below the more than 22% investment returns that are now being realized during the current fiscal year as the fund’s asset have increased in value by more than $10 billion.
The strong investment returns also come as Amon is getting ready to step down from the Division of Investment to take a job in the private sector. Amon has led the division, which manages pension fund investments on a day-to-day basis, since July 2018.
During Wednesday’s meeting, he credited the long-term strategies that have been established in prior years for helping to lay the groundwork for the current upswing.
“I’d be remiss not to point out that this has really been an ongoing development, an ongoing structure of the portfolio, and credit should be given to all the team members of the Division of Investment over many years, who have made these decisions that have led to very favorable absolute and relative outcomes for this fiscal year,” Amon said.
“We look forward to learning what happens five and 10 years from now from all the decisions that we’re making today,” he went on to say.
Shoaib Khan, the division’s deputy director, will serve as acting director starting June 4, Treasury officials said.