New Jersey still has one of the nation’s worst-funded public-employee pension plans despite recent efforts to improve conditions using larger state contributions and other policy changes.
A new report from S&P Global, one of the top Wall Street credit-rating firms, tracks some incremental progress for New Jersey’s pension system but still ranks its funding ratio as second-to-last among all U.S. states.
The Garden State also places dead last for progress on funding even the bare minimum of its growing pension costs, according to the S&P report.
The firm’s research — which did not carry with it any change to New Jersey’s “A-” credit rating — should not come as a surprise because the state routinely scores poorly in state-by-state rankings, thanks to years of underfunding by governors and lawmakers from both political parties. The report also used data from the 2017 fiscal year, meaning this latest analysis doesn’t take into account actions taken this year, including a funding boost enacted by Gov. Phil Murphy.
Still, the S&P report underscores the steep fiscal challenges that remain for New Jersey even after the state has changed its pension-payment schedule and made a series of record contributions in recent years, all to put the retirement system on a more solid footing.
Officials from the state Department of Treasury responded by highlighting Murphy’s promise to bring the state up to full pension funding over the next half-decade after inheriting an “unfunded pension liability (that) has been accruing for decades.” But Senate President Steve Sweeney, who has been calling for changes to worker-benefits as part of a broader plan to address the state’s fiscal problems, said the new report highlights the urgent need for immediate action.
“We can fix this if we address things now,” Sweeney (D-Gloucester) said in an interview.
The New Jersey pension system’s funded ratio was 35.8 percent during the 2017 fiscal year, according to the S&P report. (The funded ratio is a comparison of the pension plan’s total assets and its liabilities.)
The state is also ranked by S&P as having the highest total obligations to retirees and bondholders as a per-capita percentage of its gross domestic product. The report goes on to raise an ominous concern for states like New Jersey that have been unable to make major progress toward resolving their fiscal problems during the recent strong market performance, suggesting another recession could deliver a damaging blow.
“Significant investment losses for pension funds could make for a rougher road in the next recession, particularly for those states that have struggled to make up for previous pension weakness,” the report said.
State lawmakers have touted a recent round of incremental policy changes that have been made to help the pension system, including putting the state on a. A ramp-up in pension contributions that was started by former Republican Gov. Chris Christie has led to record state payments being made in recent years, including a $2.5 billion contribution in fiscal 2018. But that year’s contribution was worth only 50 percent of the total that actuaries said was necessary to restore the system to good health, and S&P ranked New Jersey last among all states in the category of “minimum funding progress” in its new report.
Murphy, a first-term Democrat, emphasized pension funding during last year’s gubernatorial campaign as he prepared to inherit the fiscal mess, and his first state budget increased the state contribution to a record-high level of. But that budgeted payment represents 60 percent of the total calculated by actuaries, meaning the pension hole will continue to deepen even as the contribution is rising.
Murphy has also decided to stick to the funding ramp-up schedule that was established during Christie’s tenure. If he doesn’t change course, it will take until the 2023 fiscal year before the state makes a full pension contribution.
“We recently made the first quarter payment towards what will be a record contribution of $3.2 billion this fiscal year and we are committed to ramping up payments over the next five years until we achieve the full actuarially recommended contribution level,” said Treasury spokeswoman Jennifer Sciortino. “This must remain a top priority so that New Jersey will be better positioned to meet its obligation to retirees and improve its long-term financial standing.”
Sweeney is calling for a more urgent approach to the pension-funding issue, arguing that the increasing payments that are required to bring the state up to a full contribution will crowd out other spending priorities such as public education and transportation. He’s also embracing a number ofthat were put forward several months ago by a panel of nonpartisan experts.
They includeand employees with less than five years’ service out of the troubled defined-benefit pension system. Those workers instead would be enrolled in a new, hybrid retirement plan that would have some features of a 401(k)-style defined-contribution plan.
Sweeney, who worked with Christie to enact employee-benefits cuts in 2011 — that included increasing employee-pension contribution rates — stressed that he isn’t “trying to scapegoat” workers or cast any blame on Murphy since he just took office this year. But he also said the “the numbers are the numbers” and they portray the state as being in a dangerous predicament that requires immediate action.
“Our car is stalled on the train tracks,” Sweeney said.
Graphics courtesy of Standard and Poor's Financial Services LLC