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Pension Funds

New Jersey acting treasurer reverses course, spreads rate of return cut over 5 years

Former treasurer cut pension fund's assumed rate of return by 65 basis points for next fiscal year

New Jersey acting Treasurer Elizabeth Maher Muoio, a Democrat, on Thursday revoked an assumed rate of return policy issued by her Republican predecessor, substituting a gradual rate reduction vs. the previous proposal to sharply cut the rate for the $77.6 billion New Jersey Pension Fund, Trenton.

In December, former Treasurer Ford Scudder said the assumed rate of return would be cut to 7% for the 2019 fiscal year, which starts July 1, 2018, vs. the current fiscal year rate of 7.65%.

On Thursday, Ms. Muoio announced the rate would be reduced to 7% over five years. "A gradual path to a lower rate will help mitigate the undue stress that would otherwise have been placed on local governments to address the significantly increased contributions required of them and the consequences this would have on their structural budget, reserves, and ultimately, their taxpayers," she said in a news release.

"Moreover, this move signals to ratings agencies that we are serious about bringing our assumptions in line with long-term expectations in a measured and sustainable way," added Ms. Muoio, who has been nominated as treasurer by Gov. Phil Murphy. The state Senate hasn't held a confirmation hearing.

Mr. Scudder's announcement provoked complaints in part because the 7% rate would have forced local governments to increase their contributions by an extra $422.5 million in the 2019 fiscal year.

They must contribute 100% of the actuarially assessed value each year; the state doesn't have to meet that obligation. For the current fiscal year, the state is paying $2.5 billion, 50% of its actuarially required contribution.

Among the pension systems in the New Jersey Pension Fund, two rely on contributions from the state and from municipalities — the Public Employees' Retirement System and the Police and Fire Retirement System. The others rely solely on state contributions. According to the news release, the revised rate policy will implement:

  • a 7.5% assumed rate of return effective for fiscal year 2019. Employer contribution requirements will be reflected in the revised July 1, 2017, actuarial valuations. The rate will remain at 7.5% for the July 1, 2018, actuarial valuations, which determine contribution requirements for fiscal year 2020.
  • a 7.3% assumed rate of return for fiscal year 2021 and 2022 employer contribution requirements, which will be reflected in the July 1, 2019, and July 1, 2020, actuarial valuations.
  • a 7% assumed rate of return effective for fiscal year 2023 employer contribution requirements to be reflected in the July 1, 2021, actuarial valuations.

The New Jersey Pension Fund produced a 13.07% return for the fiscal year ended June 30. The annualized return for the past three fiscal years was 5.25%; for five years, 8.75%; and for 10 years, 5.55%.