Don’t like the idea of New Jersey being almost $80 billion behind, and growing, in its pension funds?

Then a conservative public-policy group has an even more startling, incomprehensible number for you: $235 billion. That's if you presume that investment returns won’t be near what the state is relying on.

That’s equivalent to more than $26,000 for every New Jerseyan, with about 27 cents on hand for every dollar needed to pay future benefits.

A report out Thursday from the American Legislative Exchange Council, or ALEC, which derives most of its funding from corporate sources, says public pensions around the country are nearly $5.6 trillion in the hole. New Jersey isn’t the worst-off state, though it’s among them.

Here’s how it comes up with a significantly higher deficit than other calculations: States, on average, assume future investment returns averaging 7.37 percent. The report says that’s unrealistic and instead uses the rate of return yielded by a hypothetical 15-year Treasury bond, 2.344 percent.

That’s a “risk-free rate” similar to what a Society of Actuaries blue ribbon panel recommends, said Jonathan Williams, vice president of the ALEC Center for State Fiscal Reform. (The 2014 blue ribbon report chose a 30-year Treasury yield as the risk-free rate, around 4 percent.)

“It’s the proper way of analyzing unfunded pension obligations since you’re paying for a defined benefit payout, which is a risk free payout to employees, honoring the promise that’s been made,” he said. “The discount rate for valuing those unfunded liabilities needs to be also a risk-free rate, according to the actuaries.”

New Jersey’s pension liability assumes a rate of return on investments of 7.9 percent. It had been 8.25 percent before 2011 and 8.75 percent before 2004.

Officially, the state’s net pension liability is calculated by the Department of the Treasury at $79 billion.

A think tank called Truth in Accounting says that calculation relies on year-old data and that a more accurate representation of the pension deficit would be around $95 billion.

The ALEC report, using its risk-free rate of return approach, says New Jersey has the nation’s fourth-worst funding ratio for its pensions, 27 percent; the sixth-highest unfunded liability at $235 billion; and the fifth-highest liability per capita, $26,288.

“Nationwide we have a serious pension problem, and unfortunately legislators and governors keep trying to ignore it or kick the can down the stream, particularly in the case of Illinois, Chicago and New Jersey,” said Bob Williams, a senior fellow at State Budget Solutions, who helped write the report.

“I guess the states that doesn’t really surprise, but it’s the product of what they’ve been doing, is New Jersey and Illinois,” Bob Williams said. “They both have been not funding the pensions, using the money to balance the budgets or do other things.”

The report’s authors recommended that states create 401(k)-style or IRA-style plans for new public workers.

“If we’re going to keep our promises to retirees and workers, which we absolutely should when it comes to pensions,” said Jonathan Williams, “the way to do that is by creating a new deal by shoring up the pension and adding new employees to a defined contribution style 401(k) plan that the private sector has moved to a decade or two ago in many cases.”

Bob Williams said one problem New Jersey faces in making any further pension changes is that 2011 reforms weren’t followed by Gov. Chris Christie. He said employees are paying a higher percentage of their salaries into the plan but the state hasn’t followed the increased contributions required by the same law.

“And unfortunately the Supreme Court ruled in favor of the governor,” he said. “So what did that do to any future negotiations? Obviously the union workers aren’t going to believe a governor who says: ‘I’m going to make a deal.’”

New Jersey: Decoded cuts through the cruft and gets to what matters in New Jersey news and politics. Follow on Facebook and Twitter.

Michael Symons is State House bureau chief for New Jersey 101.5 and the editor of New Jersey: Decoded. Follow @NJDecoded on Twitter and Facebook. Contact him at

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