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New Jersey Gains While Illinois Sells Bonds

Leo Kolivakis's picture




 


Via Pension Pulse.

Terrence Dopp of Bloomberg reports, New Jersey Pension Fund Gains as Christie Seeks Fixes:

New
Jersey’s pension fund has gained 8.7 percent so far this fiscal year,
as Governor Chris Christie calls on lawmakers to overhaul the system to
whittle down a $53.9 billion deficit.

 

The fund
for retired teachers and government workers had $70.03 billion in
assets as of November, as performance since the July 1 start of the
fiscal year beat a gain of 8.53 percent for its benchmark, according to
a report presented to the State Investment Council today in Trenton.
Robert Grady, chairman of the panel, said the fund returned 13.4
percent in the prior fiscal year, which ended June 30.

 

Christie, 48, a Republican, has proposed rolling back a 9 percent
pension-benefits increase enacted in 2001, raising the retirement age
and suspending cost-of-living adjustments to narrow the funding gap.
The governor said he intends to restart payments into the system this
year with a partial contribution of $512 million if lawmakers act on
his plan.

 

“Unless
there are unprecedented returns over many years, there will certainly
not be a significant dent made in that unfunded liability,” said Andy
Pratt, a spokesman for treasurer Andrew Sidamon-Eristoff. “Investment
skills alone aren’t going to dig us out of this hole.”

 

‘Sustainable’ Pensions

 

New
Jersey’s fund had assets to cover 62 percent of its obligations as of
June 30, down from 66 percent a year earlier, according to Treasury
Department data. The value of the fund was $71 billion as of Oct. 31.

 

The state’s pension deficit increased 18 percent to $53.9 billion
as of June 30 as the state failed to make contributions for most of the
past decade. The state also faces an unfunded liability of $66.8
billion for retiree health-care costs, the treasury department said
last month in a statement.

 

Christie has
argued with public employee unions and Democrats who control the
Legislature over his pension proposals. Senate President Stephen
Sweeney and Assembly Speaker Sheila Oliver have released a competing
set of measures. Sweeney said his plan would create new
labor-management oversight boards modeled after the private sector and
force employees to pay more to preserve the 9 percent increase.

 

“If we cannot make the promises of our pension system more
realistic, there will be no pensions for those who have earned them,”
Christie said yesterday in his State of the State speech.

 

Underfunded Pensions

 

Twenty U.S. states including California and Illinois skipped or
underfunded their pensions from 2007 to 2009, Chicago-based Loop
Capital Markets said in an October report. Reduced funding and
investment losses left 91 of 145 systems studied by Loop with less than
the recommended 80 percent a partial payment of $1 billion.

 

The state Treasury’s Investment Division manages money for New
Jersey’s seven pension plans, which provide benefits to 728,000 working
and retired teachers, police officers and government employees.

 

The division this month invested another $40 million in
Centerbridge Credit Partners, according to a memo to the council from
investment director Timothy Walsh. Its initial $100 million investment
in the hedge fund in November 2007 has returned 47 percent, according
to the memo.

Readers who would like to know more can visit the New Jersey Division of Investment website. I also recommend reading the investment plan for fiscal years 2010-2011.
The returns were all about beta, which is why the fund's performance
basically matched its benchmark (private assets might help them boost
returns in year-end).

But the reality is that
investment performance alone cannot get New Jersey and other states out
of their unfunded liability hole. Timothy Inklebarger of Pensions &
Investments reports, Illinois governor expected to OK $4.1 billion pension bond sale:

Illinois
Gov. Pat Quinn was expected to sign a bill approved by the Illinois
Senate early Wednesday to sell up to $4.1 billion in pension obligation
bonds to help the state pay for required contributions to its
statewide pension plans.

 

The legislation passed by a 42-16 vote. The bill had been approved by the state House on May 25.

 

John
Patterson, a spokesman for state Sen. John Cullerton, who sponsored
the Senate bill, said in a telephone interview that actuaries for the
pension plans — the $33.2 billion Illinois Teachers’ Retirement System,
$12.9 billion Illinois State Universities Retirement System and $10.2 billion Illinois State Board of Investment — will have to recertify the amounts needed to cover their 2010 contribution before a final number is determined.

 

Early estimates put the contributions at $2.358 billion for the teachers’ plan, $960 million to ISBI and $777 million to ISURS.

 

“The
Senate president acknowledges that borrowing to make the pension
contributions is not an ideal move. But it was the best of the difficult
choices,” Mr. Patterson said in an e-mailed response to questions.
“That, combined with the revenue moves that were approved, will put the
state back on track to restoring sound financial footing for our
pension systems, our budget and all those who do business with
Illinois.”

 

Kelly Kraft, Mr. Quinn’s budget spokeswoman, said:
“The governor proposed pension borrowing (as) the least costly option
for taxpayers to make their required pension payments. We are pleased
with the action of the legislators on this bill. The governor is
committed to paying the pensions. We continue to look at the pension
systems to see what can be done to make them work better.”

A
lot can be done to make Illinois' pension systems work better. Most of
the problems in Illinois stem from poor governance. Risks were taken
with pension monies that should have never been approved if there was
proper oversight and people were held accountable for their decisions.
The financial crisis exposed serious governance flaws. It's not just
about poor markets. Some funds were able to adjust more quickly than
others and some were better prepared to manage downside risk. That's the
key -- managing downside risk.

Unfortunately, the 2008 financial
crisis ravaged most global pension plans. The effects were more
pronounced on mature pension plans that were already in a precarious
situation. And now Illinois is responding with pension obligation bonds.
It might be the "least costly option for taxpayers", but it's not
enough. Sooner or later, New Jersey, Illinois and other states suffering
from serious unfunded pension liabilities will need to take more
drastic measures to shore up their public pension plans. It's foolish
and irresponsible to think that markets and investment decisions will
generate the required rate of return to get them out of this mess.

 

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Thu, 01/13/2011 - 07:41 | 872497 Freewheelin Franklin
Freewheelin Franklin's picture

NJ lost a lot years ago with the Enron collapse. Some asshole invested a huge chunk of the pension money with them.

IIRC, Corzine brought in his own investment people, and the fund has been performing well, with respect to investments. However, it is still largely underfunded.

 

Steve Sweeney, and his "boss", George Norcross III (King George III) are crooked bastards. Their eminent domain land grabs are a fucking disgrace. They grabbed a Farmer's Market, and forced all of the store owners to relocate, so Norcross could have a good location to build an arena for his now defunct minor league hockey team. The store owners sued, and were awarded relocation costs, and legal fees. They were, of course, paid by the county taxpayers. Norcross backed out of the deal, amidst public outcry, and the location is now an empty lot.

 

Sweeney's brother is the President of the West Deptford Iron Workers Union, and Norcross's brother is President of the South Jersey AFL-CIO. Both are crooked union power brokers. I can't wait to get out of this state.

Thu, 01/13/2011 - 05:04 | 872443 hugovanderbubble
hugovanderbubble's picture

Sell and short US Stocks

 

Long Canadian stocks

Thu, 01/13/2011 - 04:08 | 872419 AnAnonymous
AnAnonymous's picture

Sooner or later, New Jersey, Illinois and other states suffering from serious unfunded pension liabilities will need to take more drastic measures to shore up their public pension plans. It's foolish and irresponsible to think that markets and investment decisions will generate the required rate of return to get them out of this mess.

 

Or the pensioners  understand that their pensions will no longer allow them to live in the West, will liquidate everything they have and relocate in a 4$ per day country where $70 k is enough to buy a villa on the sea shores.

 That is alrealdy a strengthening trend today. I 've kept tabs on it to 2010 from 2008. Why it should not grow more expansive when pensions are going to be less rewarding than they are today?

Thu, 01/13/2011 - 02:13 | 872364 ThirdCoastSurfer
ThirdCoastSurfer's picture

Sure enough, New Jersey's formula for success: International Equities!

http://www.state.nj.us/treasury/doinvest/pdf/Investment_Plan_Update_11-12-08.pdf

Never mind the date on the pdf of 11/12/08, the document itself is dated 3/12/10. 

 

 

Thu, 01/13/2011 - 02:01 | 872354 ThirdCoastSurfer
ThirdCoastSurfer's picture

"Risks were taken with pension monies that should have never been approved if there was proper oversight and people were held accountable for their decisions."

The statement above applies to New Jersey, right? 

"New Jersey’s pension fund has gained 8.7 percent...(on) $70.03 billion in assets" 

With constant outflows and a breathtaking rise in almost all markets at least we know where the funds to invest in the market are originating from. 


Wed, 01/12/2011 - 23:57 | 872184 Seasmoke
Seasmoke's picture

Just let the pension ponzi scams COLLAPSE under the weight of its own corruption (double & triple dippers, non state employees in pensions, part time politicians, cops and fires retiring at 45, etc, etc,etc..)......SIMPLE SOLUTION !

Thu, 01/13/2011 - 00:46 | 872271 Dr. Sandi
Dr. Sandi's picture

Yeah. And let's eat all those destitute old geezers when their checks stop. What have they done for us lately, anyway?

Thu, 01/13/2011 - 01:24 | 872327 Ahmeexnal
Ahmeexnal's picture

Those "destitute old geezers" conceived you, you ingrate!

 

Thu, 01/13/2011 - 02:22 | 872328 Dr. Sandi
Dr. Sandi's picture

Hey sailor, new in town?

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