Strong 2023 Investment Returns But Teachers’ Pension Plan Is Still in Trouble

The Star-Ledger reports that state pension investments have “raked in huge gains” so far this year, but the structurally unsound state pension system is still in trouble.  

It is of course good news that stock markets have had strong returns this year and that state pension plan assets have rebounded after a dismal 2022.  And yet, despite the much-touted $25 billion Gov.Murphy has pumped into the pension system over the last four budgets, the state’s pension system — and in particular its largest pension plan, the Teachers Pension and Annuity Fund (TPAF) — remains in bad shape.

Here are the details.  At the end of 2022, overall pension assets stood at $84 billion — down about $15 billion from $99.3 billion at year-end 2021.  So far this year, pension assets have moved up to $88.7 billion, a gain of $4.7 billion, or 5.6%.  But because the 5.6% growth was on an asset base that was $15 billion lower, current pension assets are still down over $10 billion since year-end 2021.  That’s $10 billion fewer assets earning investment returns going forward.   

Looking at TPAF, as Sunlight detailed in our most recent report, we estimated that after a year of negative returns, at year-end 2022, TPAF’s assets were $24.6 billion, as against $72.6 billion in liabilities, or a funded ratio of 33.7%.  Using the overall growth in assets of 5.6% would result in TPAF’s assets growing by $1.4 billion, bringing the current asset level to $26 billion.  This would bring TPAF’s funded ratio to 35.7% (assuming the liabilities remain the same).  This is an improvement, but a very small one. TPAF surely remains in the Urban Institute‘s “Deep Red” category as one of the most endangered pension plans in the nation.

All of which underscores how difficult it is to repair structurally unsound, underfunded pension plans without reforming them. Despite the additional billions Murphy has contributed and fabulous investment returns in 2021, one bad year like 2022, and all the extra money is wiped out, with assets back down to their level in 2020.  The gains of 2023 are just starting to claw back 2022’s losses.

Unfortunately, rather than use the revenue windfalls coming out of the pandemic to undertake the difficult work of putting TPAF on a sustainable path, Murphy chose the politically expedient route urged by his biggest political supporter, the NJEA.  He’s thrown billions good money after bad, and yet TPAF remains in perilous condition.