Imagine you are a police officer in New Jersey. You put your life on the line to keep the citizens of the state safe. When you are not risking bodily injury, you have to deal with all kinds of unpleasant situations like evictions, traffic stops, or looking for suspects with outstanding warrants for their arrest. All you want is a secure pension when you retire. How would you feel if you discovered that New Jersey stole from the police pension to shore up the failing teachers’ pension?
Clear evidence jersey is pushing out the date of disaster on the backs of police and other public employees
April 2016 is the latest report that Jersey has available. You can find all the monthly reports here. In the picture above, P&F stands for police and fire pension, TPA stands for Teacher’s Pension and Annuity Fund, and PERS stands for Public Employee Retirement system. The transfer is dollar for dollar out of the Police & Fire and Public Employees Pensions into the Teachers’ Pension. So New Jersey stole from the police pension AND the state employees. They just took more from the police.
Why Did they take more from the police and firemen?
In case you have not been following my strange obsession with the deteriorating financial condition of the State of New Jersey, the Teachers’ Pension is only about 28% funded and falling. The Police & Fire pension on the other hand is at just below 53% funded, and the Public Employees Pension is at 38% funded. All these figures are as of June 2015, so they are outdated. The real figures are probably a few percentage points worse.
The Police& Fire pension (P&F), Public Employees pension (PERS), and Teachers’ pension (TPAF) are by far the three largest pension funds in New Jersey. They’re basically the whole thing. Christie probably realizes that if one of the three pension funds becomes insolvent while he is running Trump’s campaign, that would be a national embarrassment. So, he is in effect pushing the day of reckoning for the TPAF to a later date. The other two pensions’ funded ratios will fall and the TPAF’s funded ratio will rise. My guess is that the state is hoping the credit rating agencies do not notice that they are moving money around.
New Jersey stole from the police pension because of its strong funding status in the 1990s
The state has no money to pay for their massive pension obligations. In fact, my back of the napkin calculation is that the state has only paid for $1 of every $4 it owes teachers for their retirement. If one of the three largest pensions failed, pandemonium would ensue. New Jersey could not borrow anymore in the municipal bond markets. It would have to drastically raise taxes in a state where some of the richest residents are already fleeing.
The Police & Fire Pension gets a lot of its funding from local governments. Its members also contribute a higher percentage of their pay. Police officers and firemen have to contribute 8.5% of their pay to the pension fund. The local governments must match this by law. So every year 17% of a police officers pay gets put into the state pension fund for his or her future benefit. On top of this contribution, the State of New Jersey is supposed to contribute.
The magnitude of the fraud committed by the state of New Jersey is evident by simply looking at how badly funded the P&F pension is. How could a pension with a 17% of pay employee contribution every year BE ONLY FREAKING 53% FUNDED!?! The answer is: New Jersey basically did not make much in the way of contributions. Additionally, the state allowed local governments to take an extended contribution holiday until a few years ago. During the 1990s, New Jersey assumed the blockbuster stock market returns would continue indefinitely. That meant it could cut taxes and stop contributing to the pension fund. Only recently did they start viewing the pensions as a major problem.
redistribution from the police to teachers
The state is now effectively redistributing money away from the retirement for police officers to the retirement for teachers. If I was a police officer there, I would be furious. You could make a good argument that the Police pension should be treated as a separate legal entity. Teachers contributed according to a different set of rules after all. Bond defaults or benefit cuts will have to happen eventually anyway. If I was a police officer, I would want to see what happens to the Teachers’ Pension first. If the teachers’ pension sees drastic benefits cuts, I would negotiate a lot softer with the state when our fund started running dry.
The teachers’ pension is at 28% funded and the police pension sits at 53% funded. What would you do the same as an elected official? Would you take money from the richer police retirement fund and move it to the teachers, thus making sure everyone suffers equally? Public pensions are extraordinarily expensive so there is no easy answer. Say that the state of New Jersey contributed the full 17% to the police pension. People are living longer and what worked 30 years ago might not work today.
Even so, to take from one group of employees retirement to shore up another so the credit rating agencies like Moody’s don’t downgrade you to junk bond status is the definition of desperate. Police should demand a fence around their pension fund where the state cannot touch it. In fact, if they could separate from the other state of New Jersey pension funds, it would be a good idea. I found the $200 million withdrawal from the police pension by accident. Hopefully some police officers see it and start advocating for themselves before its too late.