March 13, 2014
Re: 2013 Pension Valuation Report
The Boards of Trustees for the New Jersey public employee pension systems have received, from the actuarial consultants, the Annual Pension Valuations reports, which analyze the systems assets and liabilities, as of July 1, 2013.
The Boards of Trustees have approved and accepted the reports, which will result in reduced billings for municipal contributions due on April 1. We expect the Division of Pensions and Benefits to issue your revised bills by the end of next week.
In preparing the 2013 Valuation Report, the actuaries considered the impact of Chapter 78 Public Laws of 2011, the bipartisan pension reform initiative. As a result of modifications to the 7/1/12 actuarial valuations, local government costs will be less this April 1, than originally billed. In the aggregate, the reduction for the local Public Employees Retirement System (PERS) for their regular pension contribution is 10.35% or $85 million reduction in the employer annual contribution. The reduction for the Police and Firemen’s retirement System (PFRS) is 6.7% or $50.3million less in local government employer contributions.
New billings from the Division of Pensions, reflecting the reductions, will be posted next week
The Valuation Reports continue to report an increase in the Unfunded Accrued Liability, due to years of slow asset development, enhanced benefits, and on the State side, non-payment of full employer obligations. As a result, based upon the actuarial assumptions, the ratio of funded to the unfunded liabilities has continued decline. The ratio for local PERS, which was 74.5% in 2012, is down to 73.9% in 2013. This looks very good, in comparison to the State’s PERS ratio, which is at 46%. PFRS funding ratios declined from 77.6% to 76.69%. However the State PFRS funding ratio is at 48.55%.
Local Government funding of pension obligations based upon the assumptions approved by the Treasurer and utilized by the Actuaries are relatively good. Making full payment of employer contribution makes the difference
The Division of Investments posted a return on assets of 10.62% for PFRS and 10.38% for PERS for the year, which resulted in the local portion of PFRS receiving income of over $2 Billion Dollars and local PERS gaining investment income of $1.752 Billion Dollars. The Division of Investments in two of the past three years has exceeded, by a rather substantial amount, the assumed interest rate used for pension valuation. The excess income has helped to stabilize the employer contribution required to fund the pensions.
PFRS has reached a threshold, which has been predicated for years. In 2012 local employers had on the payroll 33,632 active PFRS members. In 2013 the number declined to 33,274. At the same time, the number of retired members and beneficiaries receiving benefits is 33,699. This marks the first time that a PFRS report listed the number of retirees supported by the system exceeding the number of active working members. In PERS, there are 189,159 active local employees and 106,184 retired members and/or beneficiaries, for a ratio of about 64%.
The average cost to the employer for each active PFRS member is $23,074, based upon the latest valuation. For each PERS active member, the average cost to the employer is less than $4,750.
For more information or if you wish to review the Valuation Reports you can go to the Division of Pensions website at http://www.state.nj.us/treasury/pensions/.
Very truly yours,
William G. Dressel, Jr.