Steve Malanga explains that Gov. Christie’s pension reforms don’t go far enough:
Joshua Rauh, the Northwestern U. finance professor, calculated that Jersey pensions could go broke sometime around 2019, but even he generously used the aggressive investment rate of return that Jersey’s pension actuaries assume. If the market doesn’t hit that rate, somewhere north of 8% a year, things could get ugly sooner. In fact, Jersey’s own actuaries estimated that if all things stay as they are (including the lousy stock market), some of the state funds could go bust as soon as 2014. Yesterday’s legislation only helps that marginally.
Here’s one way of thinking about the problem. Jersey’s pensions are currently paying out about $8 billion a year. John Bury, an actuary who has followed the pension mess in Jersey, estimates workers are putting $1.5 billion a year into the system, and with yesterday’s deal that will increase by $250 million. The state is supposed to be putting in another $3 billion or so, and the rest is supposed to come from the aggressive stock market returns that haven’t materialized in a decade. Every year that all three of those income sources don’t come through, Jersey’s pension system gets drained of more cash. This is one reason why the state estimates its pensions are $56 billion short and independent analysts put the number north of $100 billion.
As Josh Barro has argued, the only long-term solution is a shift towards defined contribution pensions for public workers.