Monetary Returns for Pension System Show Significant Growth in Recent Reports

For many years, the New Jersey public pension systems have borne the criticism of being one of the worst funded systems in the nation even though the State has been trying very hard to build up the fund’s value by contributing a substantial percentage of the amounts required by the actuaries of the system. Recent reports by the State Investment Council, the body who sets the guidelines for the funds’ investments, indicate that the description of the system may soon have to change because of recent growth in the system’s assets.

The most recent returns show that during the 2021 fiscal year to date the system had a rate of return that is almost 17%, a huge increase over the 1% returns of the 2020 fiscal year and more than twice the assumed return of 7.25% per year projected for the system by the actuaries. The actual assets of the system, which had fallen in the second half of the 2020 fiscal year because of the Covid pandemic from almost $80 billion to under $77 billion, dramatically increased to over $85 billion through the first half of the 2021 fiscal year. 

A look at the past ten fiscal years shows that there has been some stability in the funding of the system.  For that period of time, the returns have averaged more than 8% per year, which exceeds the assumed rate, a clear indication that the State is making a concerted effort to meet its pension obligations.

While the State has not been able to contribute the full amount each year to meet the employers’ funding obligations as calculated by the actuaries, it has gradually increased its annual contribution and it continues to pursue its goal of meeting the annual contribution in full. In fact, according to newspaper reports, lawmakers and the Governor are considering a larger payment to the pension system this next fiscal year to reduce the underfunded status of the system. The Governor, in his proposed budget for the next fiscal year, has proposed contributing the first full payment into the pension system in 25 years. Further, discussions are now going on among the members of the Legislature and the Governor regarding a larger contribution, stating that “it’s certainly an option on the table.”

The funding problems of the State began in the late ‘90s at a time that the pension system was fully funded. At that time, the system, which today is approximately 60% funded, was 108% funded. Political leaders began using the extra money to balance State budgets, avoiding tax increases. There were “tax holidays,” years in which no money was contributed to the system. There were benefit improvements made in the system. Gradually, the funding status of the system sank, and it took on the reputation of being one of the worst funded systems in the nation.

Efforts to change that picture appear to be bearing fruit. The combination of the current administration’s year-to-year increases in employer contributions and the successful investing of the plan’s assets is showing that growth can be constant over a long time period and that the image of worst funded can be changed.