Many happy returns for the NJ pension fund
After falling at the start of the pandemic last year, the explosion in investment income has helped push the total value of pension fund assets to more than $ 90 billion, officials said on Wednesday at ‘a public meeting of the New Jersey State Investment Council.
“The results have obviously been very favorable,” investment board chairman Deepak Raj said at the meeting.
The potential performance of the record investment comes as the state has increased pension contributions in recent years to come out of a huge hole created by past underfunding. It also comes after Gov. Phil Murphy’s administration resisted calls for short state pension payments amid budget issues that were sparked at the start of the coronavirus pandemic.
Meanwhile, strong investment income could ease the strain on the state’s annual budget as taxpayers help fund promised long-term pension benefits. The returns, which were in excess of 22% according to preliminary figures for the current year, easily exceed the long-term assumptions of the fund.
“We hope that the financial markets will remain strong and that our performance will remain strong,” said Deputy Treasurer Dini Ajmani.
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A well-nourished pension fund
The $ 90.56 billion pension fund covers the pensions of some 800,000 current and retired civil servants. It is funded by contributions from workers, as well as by taxpayer-funded payments made by their respective state and local government employers and by income that comes from the New Jersey Lottery monthly.
Last year, following a pandemic-fueled mass sell-off, investment returns for state pension funds declined; Lottery proceeds also stagnated as the economy was largely shut down to slow the rate of new COVID-19 infections.
In total, FY2020 returns barely exceed 1%, according to Treasury Department records.
The estimated market value of pension fund assets also fell significantly last year, again due to the liquidation. In the latter half of fiscal 2020 alone, the value of the pension fund has grown from nearly $ 80 billion to $ 76.7 billion, according to Treasury records.
But preliminary numbers for the first 10 months of fiscal 2021, which ends June 30, indicate yields rose 22.6% through the end of April. These returns easily exceeded the assumed annual rate of the pension fund of 7.3%.
Investments in US stocks, private stocks and emerging markets have been among the best performers, officials said.
Best returns in more than two decades
The booming preliminary estimates for FY2021 investment return are the best returns for the pension fund since 1998, and they could possibly set a new high for a single fiscal year, as more recent performance shows that the gains are shrinking. are closer to 24%, officials said.
“If these returns were to hold up, they would mark the best returns ever for a fiscal year for the pension fund,” said Corey Amon, director of the Treasury’s Investments Division.
Last year, Murphy stuck to a multi-year pension funding ramp-up schedule, as the income losses triggered by the pandemic led to a series of state budget cuts that took a toll. impact on everything from property tax relief programs to K-12 educational assistance.
While some lawmakers have called for cuts in pension payments to ease fiscal challenges, Murphy’s decision to continue with the ramp-up plan has injected nearly $ 5 billion into the pension fund, including the lottery contributions, in FY2020. And as investment returns skyrocketed, this expected payout maximized the impact of the recovery on the pension fund.
“The administration’s commitment to increase pension contributions has helped bolster value as markets continue to perform well,” Treasury spokeswoman Jennifer Sciortino said. “As a result, the investment performance for the fiscal year to date and the preliminary market value are both on track to set records for the pension fund this year.
But Murphy, a first-term Democrat, has also been criticized for issuing nearly $ 4 billion in long-term debt while initially projecting significant revenue losses for the current fiscal year. These losses did not materialize. Instead, the Treasury Department improved its revenue forecast and now forecasts that a large surplus will be carried over to fiscal year 2022, which begins July 1.
A further increase in the pension fund is planned
Murphy is also forecasting another increase in pension funding in fiscal 2022, an increase that would bring the state’s annual contribution to $ 6.4 billion, including lottery proceeds.
The actual interest cost of long-term debt issued in response to last year’s pandemic was just under 2%, which was well below the above 22% investment returns that are currently realized during the current financial year as an asset of the fund. have increased by more than $ 10 billion.
The good returns on investment also come as Amon prepares to leave the Investments Division for a job in the private sector. Amon has headed the division, which manages the day-to-day investments of pension funds, since July 2018.
At Wednesday’s meeting, he credited the long-term strategies that have been established in previous years for helping to lay the groundwork for the current recovery.
“I would be remiss if I did not stress that this is really an ongoing development, an ongoing structure of the portfolio, and credit should be given to all members of the Investment Division team. for many years, who made these decisions. which led to very favorable absolute and relative results for this financial year, ”said Amon.
“We look forward to learning what will happen in five and ten years from all the decisions we make today,” he continued.
Shoaib Khan, deputy director of the division, will assume the role of interim director from June 4, treasury officials said.
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