N.J. pension fund showing impressive returns

New Jersey’s pension fund value has grown to $80 billion, and its investments are earning double what managers expected.

Those investment gains come as good news to a state struggling to make the annual contributions that actuaries say are needed to keep the pension fund in good health.

The impressive returns, however, highlight an argument from unions that New Jersey may have missed out on even bigger gains in recent years because state contributions into the pension fund have been reduced or cut altogether, including the payment Governor Christie slashed at the end of June. Christie said he cut that payment — from a planned $1.57 billion, to $697 million — to prevent tax hikes or funding cuts to schools, hospitals and other crucial services amid a $1 billion budget shortfall.

“Our State Investment Council has done a good job investing,” Christie said Tuesday during an event in Long Beach Township, the first in a series to stress pension reform. “We’ve had a good market the last two years at least to invest into, but even with that we’re falling behind.”

But while Christie is pressing this summer for new benefits cuts, state public employee unions have tried to show how the long-term health of the pension fund could instead be helped with bigger state payments to take advantage of increased employee contributions and a productive investment climate.

Those competing positions demonstrate the complicated nature of any public debate about the pension system.

So as Christie on Tuesday was comparing the New Jersey pension system’s long-term outlook to Detroit, the city that went bankrupt in 2013, the investment council during its meeting in Trenton on Wednesday detailed the growing value of the pension fund, with managers discussing how much money they had generated in the last fiscal year, which ended June 30. Although the state does still have a gap of roughly $40 billion between the fund and projected payouts, the value of the pension fund itself surged to $80.6 billion at the end of June, up $14 billion since the end of the 2010 fiscal year.

Preliminary figures show overall returns doubled the fund’s assumed 7.9 percent annual rate of return.

“We expect the final return to be higher and in excess of 16 percent for the full fiscal year,” said Chris McDonough, director of the state Division of Investment.

In all, pension fund returns over the last two fiscal years have averaged near 14 percent, state Department of Treasury officials said. At the same time, the pension fund, which covers the retirements of an estimated 770,000 current and retired public employees, has distributed roughly $34 billion to beneficiaries since June 30, 2010.

“Our mission is to fund the best possible rate of return at an acceptable level of risk,” said Robert Grady, chairman of the investment council. “When I became chairman of the SIC four years ago, the fund balance was $66 billion. Since then it has achieved more than $35 billion in gains, including substantial payouts to retirees.”

The pension issue is not a new one in Trenton as the state has long struggled with gaps in funding as benefits either stayed the same or were boosted. To address the problem, Christie, a Republican, and Democratic legislative leaders came together in 2011 to enact a series of public employee benefits changes, including increasing the age of retirement, ending cost-of-living increases and forcing employees to contribute more for their health insurance and pension benefits.

Christie claims those moves will save an estimated $120 billion, but now he says that’s not enough as the state budget has not been able to keep up with the annual cost of the remaining benefits.

State tax collections have come up short of projections for three straight years, forcing Christie to go back on a 2010 promise to increase state pension contributions over a seven-year period.

The governor’s $32.5 billion budget for the current fiscal year includes a $681 million state contribution, far below the $2.25 billion payment called for in the 2010 law.

“What does that tell you? That we promised too much, that we’re paying out too much and we have to reduce that,” Christie said.

He did not detail what new benefit cuts he is seeking, saying that will come later this year.

But as Treasury officials figure out the final pension fund returns for the last fiscal year, Adam Liebtag, the state AFL-CIO union representative on the investment council, asked if they could also prepare data to show how much more the pension fund would have grown if the state was making bigger employer contributions.

“It might be the appropriate time to re-raise that [issue],” Liebtag said during Wednesday’s meeting.

Tom Byrne, the panel’s vice chairman, said experts have told him if the current rates of return keep up “we’d have no pension debt at all.”

But he added: “Obviously we can’t count on that. To me, that’s water under the dam.”

Staff Writer Melissa Hayes contributed to this article. Email: reitmeyer@northjersey.com