NEW JERSEY TAXPAYERS’ ASSOCIATION PENSION FORUM THINGS PUBLIC PLAN ACTUARIES WON’T TELL YOU

1 There are No Funding Rules ERISA (Employee Retirement Income Security Act) of 1974 exempted government plans from funding requirements. GASB: suggestions NJTA Pension Forum

2 You can’t trust them Private Sector: ERISA ‘74 to PPA ‘06 Pressure to keep contributions low from all: Taxpayers Politicians Public Workers NJTA Pension Forum

3 Politicians Tell Them Their Job 7.95% funding interest rate; ARC Phase-in The Treasurer, upon recommendation from the Directors of the Division of Pensions and Benefits and the Division of Investments, has approved a change in the economic assumptions used for the valuation. The rate of investment return has been revised from 8.25% per annum to 7.95% per annum and the assumed salary increases have been reduced by 2.00% per annum for fiscal year ending 2012 through fiscal year ending 2016 and reduced by 0.75% per annum for fiscal years ending 2017 and thereafter. These assumptions will remain in effect until such time as the Treasurer approves revised economic assumptions. The valuation reflects the final provisions of the Appropriation Act for fiscal year The fiscal year 2011 recommended State pension contribution of $754,168,635 has been reduced to $0. The valuation also reflects the effect of Chapter 1, P.L for fiscal year The fiscal year 2012 recommended State pension contribution of $874,346,428 has been reduced to $124,906,634. This amount may be subject to change per the requirements of the State’s fiscal year 2012 spending plan. Lastly, the valuation reflects the provisions of Chapter 1, P.L which allows the State Treasurer to reduce the recommended State pension contribution for the 2013 fiscal year to no less than 2/7th of the recommended contribution. Buck Consultants July 1, 2011 PERS Report NJTA Pension Forum

4 Defined Benefit Pensions in the Public Sector are Expensive COLAs Early Retirements Population with lifetime health benefits NJTA Pension Forum

5 Public Valuations Are Easy To Do No IRS/PBGC/GASB Computers Government Entity does much of the grunt work NJTA Pension Forum

6 Benefit Values Always Understated Gaming the System Salary Spiking Buying Service Credits Underfunded Plans assume interest on money that is not there. NJTA Pension Forum

7 Private Sector Gimmicks Should have no application to Public Plans: Asset Smoothing 30-Year Amortization of Unfunded Dodgy Funding Methods (PUC) NJTA Pension Forum

8 Unions Can’t/Won’t Help Demanding (Suing for) Full Funding Impractical Benefits wouldn’t be as high Courts packed by/with politicians NJTA Pension Forum

9 Drop-Dead Date More Relevant As of June 30, 2011, the ratio of market value of assets to the prior year’s benefit payment is 8.1. This is a simplistic measure of the number of years that the assets can cover benefit payments, excluding future State and member contributions, and investment income. This ratio increased by 1.3% from the previous year’s ratio of 8.0. If ASF assets are excluded, since they represent accumulated contributions from active and inactive members, the ratio is 4.2. Buck Consultants July 1, 2011 PERS Valuation (page 32 of 134) NJTA Pension Forum

10 Most Actuaries Would Love to be Independent Though they can’t say so because it would admit that they are not now and crack the illusion of objectivity. With the computer programs we have today it would be simple to come up with multiple valuations using varying options that stakeholders could decide as to their reasonableness. Deteriorating funded ratios are a direct result of bad assumptions. New Jersey: 30% NJTA Pension Forum