In March, the State actuaries delivered their 2012 valuation reports for all State retirement systems, including TPAF and PERS. The valuations show the financial condition of the systems as of July 1, 2012 and give the basis for determining the appropriation payable by the employers for the fiscal year beginning July 1, 2013. The reports also determine the “targeted funded ratios” as of July 1, 2012 for purposes of Chapter 78, P.L. 2011.
According to the actuaries, the entire State retirement system continues to get more underfunded. As of June 30, 2012 the system (all plans combined, including TPAF, PERS, PFRS and others) had 64.5% of assets to cover the liabilities, compared to 67.5% a year earlier. The unfunded liability grew from $41.7 B to $47.2 B.
Two major reasons for this increase is that the State only put in a small part of the required contribution, in addition to many years of skipped payments, and the system assets only earned 2.46% for fiscal year 2012.
The pension reform did produce some positive impact in terms of containing a normal cost part of the contribution, but it would take many years of good market returns and putting in entire required contribution into the system annually to offset the damage. The unfunded liability growth actually caused the total required contribution by stature to increase from $2.1 B for fiscal year 2013 to $2.3 B for fiscal year 2014 for TPAF alone.
- The funded ratio for TPAF based on the actuarial value of assets was reduced from 64.0% as of 6/30/11 to 60.5% as of 6/30/12.
- The funded ratios for PERS based on the actuarial value of assets were reduced
- from 55.0% as of 6/30/11 to 50.4% as of 6/30/12 for the State, and
- from 77.0% as of 6/30/11 to 74.5% as of 6/30/12 for the Local employers
For purposes of Chapter 78, P.L. 2011, the “targeted funded ratio” is 76.428% for the valuation year commencing 6/30/12. So, both systems’ funding levels are below the target ratio, including PERS local employers who were above that ratio last year.
The drop in the funded ratios was due to the increase in the unfunded liability. The unfunded liability grew primarily due to the fact that the State has not contributed the full statutory required contribution, but is anticipated to contribute only the phased-in amount (2/7th of the total amount on 6/30/13). Another reason for the increase in the unfunded liability was the disappointing return on total pension assets – approximately 2.46% as of 6/30/12 compared to the assumed actuarial rate of return of 7.95%.
Full reports can be found on the State website at: http://www.state.nj.us/treasury/pensions/actuarial-rpts.shtml
NJEA research is currently working with Segal consultants on our own projection study and what positive steps can be taken to improve the current condition of the State pension system.