Buoyed by a recent windfall of tax revenue, Gov. Phil Murphy’s administration announced last week that it has already contributed $5.8 billion to New Jersey’s public-worker pension fund for the new fiscal year that began on July 1.

The hefty pension payment was made in a lump sum last week, instead of in separate installments at the close of each quarter of the fiscal year, which the state has generally done since 2017.

The lump-sum payment set a record as New Jersey’s largest-ever annual pension contribution, and it is expected to add millions of dollars to the state’s bottom line if professionally managed pension investments match their assumed returns over the next 12 months.

It also marks the first time since the 2007 fiscal year that such a pension payment was made at the start of a fiscal year instead of later, according to the Department of the Treasury.

Further $1B contribution expected

Another estimated $1.1 billion in revenue from the New Jersey Lottery is also expected to flow into the $90 billion pension fund throughout the remainder of the 2022 fiscal year, thanks to another law that went into effect in 2017.

Taken together, the total pension contributions made during the 2022 fiscal year are projected to hit nearly $7 billion, easily surpassing what would be considered by the state’s actuaries to be a “full” annual pension payment, according to Treasury department records.

Those contributions will also make Murphy, a first-term Democrat up for reelection in November, the first governor to make a full payment since Christie Whitman in 1996.

“After years of kicking the pension can down the road, a practice which has cost the state billions and billions of dollars, today we are officially turning the corner,” Treasurer Elizabeth Maher Muoio said in a statement issued last week.

New Jersey’s many years of skipped pension payments or only partial contributions helped make the state pension system one of the nation’s worst-funded state retirement plans by the time Murphy took office in early 2018.

Since then, Murphy followed a pension-funding ramp-up plan established by his predecessor, Chris Christie, a Republican who made numerous efforts to shore up the pension system during his two terms in Trenton.

Ahead of schedule

Earlier this year, Murphy put forward a state budget plan that called for making a “full” $6.4 billion pension payment, counting Lottery contributions, during the 2022 fiscal year, one year ahead of schedule under the existing ramp-up plan.

But in a $46.4 billion spending bill lawmakers sent to Murphy in late June, another $505 million was added to the total pension contribution. That addition, according to lawmakers, was intended to help the state prepare for a lowering of the pension fund’s annual assumed rate of return for its long-term investments that is due to take effect about a year from now.

The current rate is 7.3%, but it will drop to 7%, a rate that is considered more realistic for the long-term investments, starting next July 1.

However, by assuming less revenue will be generated by pension-fund investments over the long term, a bigger share of the pension-funding burden will shift to taxpayers via the state budget because employee contribution rates are already fixed in law.

Senate President Steve Sweeney (D-Gloucester) backed the $505 million increase and he said lawmakers also recommended making the lump-sum payment at the start of the fiscal year.

Recent projections by the Senate Majority Office suggest the upfront payment — bolstered by the extra $505 million tacked on by lawmakers — will generate nearly $300 million in additional net revenue over the next year under the current assumed rate of return compared to what the quarterly payments would have earned.

“Every New Jersey resident stands to benefit from this action for decades to come, and I am proud beyond words of this accomplishment,” Sweeney said.

Projected savings

Moreover, the Murphy administration projects savings of over $2.2 billion will be generated over the next 30 years due to all the recent changes made to the state’s pension-funding policies.

“This budget is the first in a generation — 25 years — to make our full payment into the pension funds of our public workforce,” Murphy said in his statement.

Assembly Speaker Craig Coughlin (D-Middlesex) also weighed in, calling the lump-sum payment “another significant step in the right direction.”

“Fueling the promise of retirement security, this payment builds upon our pledge towards restoring the health of our public pension systems and ensuring full benefits to pensioners for years to come,” Coughlin said.

Prior to establishing the quarterly pension-payment schedule, the state often waited until the very end of the fiscal year to deposit money into the pension fund. That practice made it easy for governors and lawmakers to raid the funding set aside for the pension payment whenever tax collections fell short of projections and drained the state’s budget reserves.

But this year, instead of facing a shortfall, Treasury projected a more than $5 billion revenue windfall would develop through the end of the 2022 fiscal year.

Those unexpected revenues were added to the nearly $4 billion that the Murphy administration borrowed without voter approval last year after it projected the coronavirus pandemic would trigger huge revenue losses that ultimately never materialized, helping the state generate a massive $10 billion surplus heading into the 2022 fiscal year.

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