Not What We Want to Hear, But More Bad News on NJ Public Pensions

While most of us are (rightly) concerned with Covid19, the ever-watchful BuryPensions blog has once again sounded the alarm.  With our state government understandably consumed with the Covid19 crisis, SPCNJ has been trying to alert NJ citizens that there is trouble ahead.

The bond rating agency S&P Global measured the liquidity of several stressed public pension funds.  Liquidity refers to the amount of cash coming in from contributions and investment returns as against the amount of cash going out in benefits payments, and S&P looks at this amount as a percentage of assets. A negative number means that assets (investments) must be sold to fund benefits payments, and with the stock market down substantially, this is a terrible time to be selling assets.  Selling assets now will mean lower returns and a lower funded ratio in the future.  Bad news all around.

As SPCNJ has been warning and as S&P confirms, NJ largest public pension fund, the Teachers Pension and Annuity Fund (TPAF), has the worst liquidity if any public pension fund in the nation.  S&P calculates TPAF’s liquidity to asset ratio as -7.46%.  This means that there is a gap between the cash coming in and the cash going out that amounts to 7.46% of TPAF’s assets, which gap will likely have to be filled by selling assets at a very low price.

As SPCNJ previously estimated, TPAF’s funded ratio is currently below 20% due to the market downturn, which means that TPAF has assets set aside to cover less than 20% of TPAF’s liabilities.  If TPAF is forced to sell assets at depressed prices to meet cash needs, this ratio will deteriorate further.

Confirming this dire scenario, the rating agency Moody’s just put NJ’s bond rating on negative outlook (NJ already has the second-lowest bond rating of any state – just after Illinois).

The bottom line is that NJ’s precarious public pension system was vulnerable to any sort of market downturn, and that downturn has occurred.  NJ’s pension obligations are based on political promises extracted by powerful special interests like the NJEA that were too generous for our state’s ability to pay, and now we are going to face the consequences.