Is the Cranbury Township Employee Pension Fund Under Funded?

[Guest]

An issue was raised in the water tanker thread about the pension fund being under funded.

Can anyone add to this discussion with any facts or figures?

[Guest]

The CFO of the town should know, right?

[Guest]

The town participates in the state pension scheme we do not have our own pension plan, NJ does not allow municipalities to have their own pensions as we hear every day which is why politicians are double dipping. According to this NJ article and as we hear in the news and papers the state plan is underfunded. So by default the town plan is underfunded.

http://www.nj.com/news/index.ssf/2010/02/nj_panel_reveiws_state_pension.html

Now is this a big issue for an employee. No. Why? Because unlike the private sector the government can always raise taxes or fees to get revenue to cover pensions in payment if the investments do not come back. Certainly, the benefit can change on how it is calculated, but it is still a DB plan. In the private sector if a company does not sell more goods or provide more services than an underfunded plan is a major risk to the employee.

[Guest]

Check this out:

States short $1 trillion to fund retiree benefits


Taxpayers could be on the hook for $1 trillion in pension and retiree health benefits.

By Tami Luhby, senior writerFebruary 18, 2010: 7:31 PM ET

NEW YORK (CNNMoney.com) -- Just as they are contending with massive gaps in their operating budgets, states and localities must also deal with a $1 trillion deficit in public employees' retirement benefits' funds, a new report found.

The shortfall amounts to more than $8,800 for every household in the nation, according to the Pew Center on the States, which published its findings Thursday.

States largely got themselves into this mess by failing to make annual contributions while also enhancing benefits, the study found. Now, they are behind by a total $452 billion in their pension accounts and $555 billion in their retiree health funds, as of the end of fiscal 2008, which ended June 30 for most states.

The deficit is likely even more severe because the report did not take into account the crumbling of the stock market in the latter half of 2008. The typical pension plan lost 25% of its value in 2008.

States must find ways to make up these gaps because retiree benefits for public workers are largely guaranteed by union contract. And they are funded through contributions from both employees and state employers, as well as investment returns.

So when gaps appear, states must ask their residents to make up the difference, usually through property tax or income tax hikes.
...
http://money.cnn.com/2010/02/18/news/economy/public_pension_gap/index.htm

[Guest 2]

No problem?

Look now, our pension benefits are under attack. The members are going to have to "pay" to fix it, even though they have contributed 5% to 8.5% of their salary every year. This contribution is mandatory --- not like a 401k which is voluntary. Yes the benefit needs to be paid at the end, but it is a sin how the state of NJ has dodged their obligation for years and now expects the state employees to pay up. We pay taxes too.

This would be considered criminal in the private sector.

[Guest]

[Guest]

[Guest 2]

No doubt that after paying in 5% to 8.5% per year , after a 35 year career one can expect a $50,000 dollar a year pension. But let's face it, a teacher can only make a max of 80,000 a year after 35 years. No one is living the high life on that in NJ.

If you put 5% a year into a 401K for 35 years from the time you were 22, and assuming you are making better than a paltry $80K teacher salary per year, I think you could draw down 50K a year too (or more - given the right market conditions.)

But hey, we can argue the numbers, but the bottom line is, teachers contribute, and accept lower over all salaries than the private sector in return for which they perform the critical job of educating our children. Don't act like they are getting rich off of tax money. All we ask the government and tax payers to do is fund their obligation equally.

Now that they haven't funded it, state employees and teachers are expected to take the hit. NOT RIGHT!

[Guest]

[Guest]

I don't understand. What hit are you taking? Where is your risk? This is what the news line is, but there is no risk to you. The plan benefit is the same regardless of the funding status. They are not saying increase your contributions, or change the benefit payment to career average as they should.

You have a guaranteed benefit and income in retirement. The benefit is backed by an employer (the state) that has a guaranteed income and can always increase taxes and fees and as a retiree you can move out of state if that happens and you don't want to pay.

A 401k being under funded is a huge issue. That most people are facing.

Now, if you are willing to get rid of the DB plan, take a 401k in place I'll support you and everyone else. You can do what my employer does and make contributions optional so you can forgo that 5.5% or 8.5%. We can give you a 50% match on 5% of salary. I'd even go better to 100% match for you. Right now if I contribute 5,000 my employer gives me 2,500. To retire properly I need about 10% return year over year which is not happening because I do not have an option to self invest. I have to use one of the employer selected funds.

[Guest 2]

I'm not saying the DB plan is worse or even equal to a 401K , I'm saying it's part of the package. Make a relatively low salary for your working years and get a guaranteed pension. Now you won't get the pension for free (you have to contribute) and you won't make a killing ($50K in retirement isn't party city in NJ). That's the deal -- now to change the rules because the state hasn't lived up to their end the bargain, that's just fundamentally unfair.

That's my point.

[Guest]

Jobs like cops and teachers while paramount to a functioning society have traditionally never been high paying. However in recent years the idea of a fixed pension and a healthcare plan have made up for lower salaries than their private industry counterparts. That is not to say that a police officer making 100k with overtime and working crappy hours or a teacher making 80k in central NJ is living high on the hog.

[Guest]

[Guest]

Teacher salaries are not particularly modest these days with many districts starting around $50k. There are also opportunities to coach, tutor and teach summer school all of which can supplement income without extending hours beyond what many consider a typical workday.

I am not suggesting teachers don't deserve it, or that they don't work hard. However, I think the argument that teachers sacrifice salary for benefits is no longer true. Today's teacher salaries are competitive and benefits are off the charts.

Good for them, but PLEASE, stop singing the blues!

[Guest]

[Guest]

The teachers in the surrounding area start at or above 45k. Not a lot of straight out of school jobs start at 45k. Additionally, the schools often pay the cost of additional education. Moreover, as you get additional degrees your pay scale increases.

The only problem with teacher pay is that it tops out at about 90k.