TRENTON — The $86 billion system that funds pensions for public workers, state troopers, local police and firefighters and teachers lost ground in the first year public workers were required to pay more toward their retirements, according to reports released Monday.
Actuarial reports show the funds had significantly lower-than-expected investment returns and lost additional ground because the state paid one-seventh of its contribution to the system for the fiscal year that ended June 30, 2012. As a result, the gap between the system’s assets and eventual liabilities grew by $5.5 billion, or 3 percent.
Gov. Chris Christie said he wasn’t surprised by the reports, but public employee unions said they were disappointed.
“We’re falling behind by a heck of a lot less than we were in the years before I got here when they were making no pension payments,” Christie said after an event in Jersey City. “The unfunded liabilities will continue to increase somewhat, but significantly less than they did under previous administrations, so we’re making progress. But you can’t expect that I’m going to come in here to a $60-plus billion dollar underfunded pension and fix it overnight.”
Christie championed pension changes enacted in 2011 that required public workers to contribute at least 1 percent more of their pay toward retirement benefits and raised the retirement age from 62 to 65 for new hires.
Public employee unions fought the changes, which they said passed the burden onto workers after years of missed payments by the state. The 2011 law allowed the state to phase in its pension contribution over seven years in one-seventh increments. Christie has proposed a $1.67 billion contribution for the fiscal year that begins July 1, which represents three-sevenths of the state’s share for the year.
“Today’s announcement by the actuary for the Police and Firemen’s Retirement System that the value of the pension fund had dropped in 2012 is a cause for serious frustration by the members of the New Jersey State PBA,” said its president, Anthony Wieners. “Police officers, both active and retired, made a commitment to ensure our pensions were secure under the guise of shared sacrifice, but politicians have again shortchanged the retirement system.”
Janet Cranna, of Buck Consultants, one of two actuaries to present their review of pension funds Monday, said the PFRS’ funding ratio fell below the target rate of 76.4 percent because of a drag by the state. Local employers are funding PFRS at a rate of 78 percent, while the state’s funding level is at 53 percent.
The retirement fund for State Police also saw an increase in its unfunded liability, which Cranna attributed to the state falling shy of its funding obligation, low investment returns and more retirees.
“The state made a commitment to fund their part of the pension, and we’re going to hold them to it,” said Christopher Burgos, president of the state trooper union.
Pension changes enacted in 2011 required workers to pay more to shore up the system, which was in danger of becoming insolvent without significant changes. Automatic cost-of-living increases, or COLAs, were suspended until the funds rebound. Administrators cannot consider reinstating the COLAs until funds hit their targets and can show sustainability at that level.
Treasury Department spokesman Bill Quinn said the pension system shortfall would be worse if reforms had not been enacted. For example, the unfunded actuarial accrued liability for state and local pension funds was a combined $53.8 billion before the reforms were enacted and $36.3 billion after, an improvement of $17.5 billion, he said.
Pension fund investments saw a 2.52 rate of return for the fiscal year, far below the 7.95 percent return rate that was assumed.
But Quinn said other large state pension systems fared worse: The return rate for California’s system was 1 percent and Florida’s was 0.29 percent for the same period.