Moody's Foresees Dire Future for NJ Pension

(March 2, 2011) — A Moody’s Investors Services report alleges that New Jersey pension reform will deteriorate despite budget reform proposals by Gov. Chris Christie.

According to Moody’s, even if the state Legislature approves Christie’s proposals, it is likely that the proposed reforms would encounter union-led litigation. The pension system faces a $30.7 billion unfunded liability for state workers, the ratings agency said.

“New Jersey faces pension funding requirements that, like Illinois’, are straining the state’s budget,” the two-page report said. “In fiscal 2010, New Jersey failed to make any contribution, and it did not budget a contribution for the current year. In addition, the state faces retiree health benefit liabilities that are even more onerous than its pension burden. The governor has proposed additional reforms, including reversal of a 9% benefit increase granted in 2001, elimination of automatic cost-of-living adjustments, and increases in both the minimum retirement age and required employee contributions.”

The report said New Jersey now has a “sizable” $30.7 billion unfunded pension liability “making it the seventh-lowest funded system in the country.”

Earlier this month, citing financial stresses of its large unfunded pension liabilities, Standard & Poor’s lowered its ratings on the state of New Jersey’s general obligation debt.

“The lower rating reflects our concern regarding the stresses from the state’s poorly funded pension system, substantial post-employment benefit obligations, and above-average debt levels,” Jeffrey Panger, credit analyst, said in a report. “The downgrade also reflects the application of Standard & Poor’s newly adopted criteria on U.S. states, which more transparently incorporates debt, pension, and other post-employment liabilities, along with other rating factors.”

Credit weaknesses, the S&P said, include:

• A large unfunded pension liability;
• Significant postemployment benefit obligations; and
• An above-average debt burden.

In October of last year, the New Jersey State Investment Council reported that it planned to boost its alternatives target to 38%, while the state’s pension fund for teachers and government workers is negotiating reductions in fees and expenses for private investment managers.