Pension Fund - Will It Be There For Me When I Retire?
The question most frequently asked by administrators discussing retirement is “Will the pension system be there for me when I retire?” I hear it at workshops and I hear it when individually counseling prospective retirees.
It is a genuine concern for many people, who see it as a valid question considering the prominence of the pension system debate that has raged for the eight years of the Christie administration. During that time, the system has undergone a significant number of changes, including four new levels of benefits (each worse than the previous one) affecting new enrollees, the suspension of cost-of-living adjustments until there is a substantial infusion of funds into the system for all retirees, and the gradual elimination of the full state-paid health benefits for many current and future retirees.
During that entire time, the solvency of the system has been debated in the media, a special committee appointed by the Governor has recommended changing the system completely from a defined benefit pension plan to a 401k retirement plan and suggestions have been made to reduce the value of the health benefits from top-notch to mediocre. The Governor and the Legislature have battled over the amount that should be contributed to the retirement system by the State. Further, the State has juggled pension contribution monies to balance the State budget by reducing the original pension contribution amount contained in the preliminary budget so that the final budget was balanced.
Is it any wonder that many people are skeptical of the State’s ability to meet its long-term obligation to provide lifetime pensions?
Lately, however, there have been very encouraging signs that times are improving and that the pension system will be there for all retirees:
# As of November 30, 2016, the assets of the pension system were close to $72 billion. Movement in the stock market since then has undoubtedly increased that amount considerably, surely improving the outlook for the system;
# The Governor’s 2017 budget has an amount of $2.51 billion budgeted for the retirement system this year. That is an increase of $651 million over last year’s retirement system contribution;
# The discussion to freeze the current defined benefit pension plan and switch to a 401k retirement plan has stopped;
# The employee contribution rate has increased from 6.5% to 7.5% during the past seven years. This 1% increase produces millions of additional dollars for the retirement fund each year, helping to improve the funded status of the system;
# A law was enacted recently that will require the State to make its contributions to the pension system on a quarterly basis rather than the annual basis that had been the law previously. Quarterly payments mean that the retirement system would be able to invest the contributions four times a year rather than once a year. Theoretically, this should enable the system to increase its growth because of a compounding effect;
# Changes in the system in the past eight years have reduced the pensions amounts and reduced the cost of providing health benefits for future retirees. As an example, Tier 5 retirees will have to wait longer to retire (age 65 rather than the current age 60 for normal retirement and 30 years rather than the current 25 for early retirement) and receive a lesser benefit (n/60 rather than n/55 and an early retirement penalty that begins at age 65 rather than age 55). While these changes do not help the individual retiree, they do have a favorable impact on the solvency of the system.
# The Democratic challengers for the governorship in November (Murphy, et al) have indicated their belief in the defined benefit system and in funding it properly. Republican challengers have not issued any statements so far regarding the system.
So, will the system be there for all members (current actives and retirees) of the system in the future?
I definitely believe so!