Ciattarelli: Uncertain Investment Market Another Reason Pension Reform is Needed
Updated On: Sep 16, 2018
PolitickerNJ - TRENTON, NJ – Assemblyman Jack Ciattarelli warned that New Jersey cannot rely on its investment portfolio returns to help reform its pension system and that unrealistic projected returns make a bad situation worse. More than two-thirds of states have reduced their pension investment projections since 2008, according to the National Association of State Retirement Administrators. The average projection target of 7.68 percent is the lowest since 1989.
“Like other states, New Jersey’s significant unfunded pension liability is affected by increased lifespans, expensive benefits, inadequate or skipped payments and rates of return on investments that fall short of projection,” said Ciattarelli, R-Somerset, Hunterdon, Mercer and Middlesex. “These drivers all point to the urgent need for comprehensive reform, including lowering the projected rate-of-return.”
Last week, New York, which runs the third-largest public pension system, announced plans to lower its expected return to 7 percent from 7.5 percent after making a similar cut five years ago. The San Diego County Employees Retirement Association is dropping its level to 7.5 percent from 7.75 percent.
“When the actual rate-of-return falls below the forecast, it makes a bad situation worse by increasing the state’s funding obligation,” explained Ciattarelli. “Falling short of the assumed rate is not always the fault of investment advisers and decision makers. There are other reasons, including prolonged periods of low interest rates.
“All stakeholders must face reality – we are not going to refinance, borrow, tax, grow or invest our way out of this pension crisis,” stated Ciattarelli. “We need comprehensive reform in which every citizen and constituency has a contributory role. We need a plan that we can honor and afford.”
California, which runs the nation’s largest pension system, is discussing a reduction below its current level of 7.5 percent, and in Oregon and Texas, the 14th and 35th largest in the country, both approved lowering forecasts in late July by a quarter percent. The biggest move downward belongs to Delaware, which recently dropped its target to 7.2 percent from 8.5 percent in 2003.
New Jersey’s projected return on pension investments is currently 7.9 percent, down from 8.75 percent between 1991-2004 and 8.25 percent 2005-2011.