NJ Civil Servants’ Pension Fund Notable Record
Buoyed by a recent windfall in tax revenue, Gov. Phil Murphy’s administration announced last week that it had already paid $ 5.8 billion into the New Jersey Civil Servants’ Pension Fund for the new fiscal year that has begun. July 1.
The hefty pension payment was made in a lump sum last week, instead of separate payments at the end of each quarter of the fiscal year, which the state has typically done since 2017.
The lump sum payment set a record as New Jersey’s largest annual pension plan contribution, and it is expected to add millions of dollars to the state’s bottom line if professionally managed pension investments match their expectations. assumed returns over the next 12 months.
It is also the first time since fiscal 2007 that such a pension payment has been made at the start of a fiscal year rather than later, according to the Treasury Department.
Additional contribution of $ 1 billion expected
Another estimated $ 1.1 billion in New Jersey lottery revenue is also expected to flow into the $ 90 billion pension fund during the remainder of fiscal 2022, thanks to another law that came into effect. in 2017.
Overall, total pension contributions made in fiscal 2022 are expected to reach nearly $ 7 billion, easily exceeding what would be considered by state actuaries to be a “full” annual pension payment. , according to Treasury Department records.
These contributions will also make Murphy, a Democrat for the first term re-elected in November, the first governor to make a full payment since Christie Whitman in 1996.
“After years of ending the pension, a practice that has cost the state billions and billions of dollars, today we are officially turning the corner,” Treasurer Elizabeth Maher Muoio said in a released statement. last week.
New Jersey’s many years of non-payment of New Jersey pensions or only partial contributions helped make the state’s pension system one of the least well-funded public pension plans in the country by the time Murphy took his retirement. functions at the beginning of 2018.
Since then, Murphy has followed a plan to ramp up pension funding set out by his predecessor, Chris Christie, a Republican who went to great lengths to shore up the pension system during his two terms in Trenton.
Ahead of the program
Earlier this year, Murphy presented a state budget plan that called for making a “full” payment of $ 6.4 billion, including contributions to the lottery, in fiscal year 2022, a year earlier than expected as part of the existing ramp-up plan.
But in a $ 46.4 billion spending bill that lawmakers sent to Murphy in late June, an additional $ 505 million was added to the total contribution to the pension plan. According to lawmakers, the addition was intended to help the state prepare for a drop in the pension fund’s assumed annual rate of return on its long-term investments, which is expected to take effect in about a year.
The current rate is 7.3%, but it will drop to 7%, a rate deemed more realistic for long-term investments, as of July 1.
However, assuming that less income will be generated from long-term pension fund investments, a larger share of the burden of financing pensions will be transferred to taxpayers through the state budget, as the contribution rates of employees are already fixed by law.
Senate Speaker Steve Sweeney (D-Gloucester) backed the $ 505 million increase and said lawmakers also recommended making the lump sum payment early in the fiscal year.
Recent projections from the Senate Majority Office suggest that the upfront payment – bolstered by the additional $ 505 million added by lawmakers – will generate nearly $ 300 million in additional net revenue over the next year below the rate of. current assumed yield relative to what quarterly payments would have earned.
“Every New Jersey resident will benefit from this action for decades to come, and I am proud beyond words of this accomplishment,” said Sweeney.
Additionally, the Murphy administration predicts that over $ 2.2 billion in savings will be generated over the next 30 years as a result of all of the recent changes to the state’s pension funding policies.
“This budget is the first in a generation – 25 years – to make our full payment into the pension funds of our public workforce,” Murphy said in his statement.
Assembly Speaker Craig Coughlin (D-Middlesex) also intervened, calling the lump sum payment “another important step in the right direction.”
“Fueling the promise of retirement security, this payment builds on our commitment to restore the health of our public pension systems and ensure full benefits to retirees for years to come,” said Coughlin.
Before establishing the quarterly pension payment schedule, the state often waited until the very end of the fiscal year to deposit money in the pension fund. This practice made it easy for governors and lawmakers to plunder funds earmarked for pension payments whenever tax revenues fell below expectations and drained the state’s fiscal reserves.
But this year, instead of facing a deficit, the Treasury predicted a revenue windfall of more than $ 5 billion to grow through the end of fiscal 2022.
These unexpected revenues were added to the nearly $ 4 billion the Murphy administration borrowed without voter approval last year after predicting that the coronavirus pandemic would trigger huge revenue losses that ultimately did not materialize. never materialized, helping the state generate a whopping $ 10 billion surplus by fiscal year 2022. year.