New Governmental Accounting Standards Board regulations have led to a big dip to an already-low funded status for the New Jersey Pension Fund, Trenton.
Using the rules established by GASB 67, the funded status for the fiscal year ended June 30 was 44.1% based on the aggregate data of the seven separate pension funds that make up the $81.2 billion New Jersey Pension Fund, according to a Tuesday supplement to a $525 million general obligation bond document from the state.
The funded status using traditional accounting methods before GASB 67 took effect was 63% for the fiscal year ended June 30, 2013, according to a recent report by a commission studying New Jersey's pension and health-care benefits.
The bond document and a spokesman for the New Jersey Department of Treasury said that all states are subject to the new GASB accounting rules.
The new rules “now require all state and local governments which administer defined benefit pension plans to take a more stringent approach when reporting to the financial community liabilities, assets and funding ratios,” Christopher Santarelli, a Treasury Department spokesman, said in an e-mail. “This is just a financial reporting change and does not materially impact New Jersey's fiscal position or the system's current assets.”
Mr. Santarelli added: “This new reporting system, which is based on actual contributions and not long-term promises … only underscores the urgent need for additional, aggressive reform of a pension and health benefits system that if fully funded would eat up 20% of New Jersey's budget.” The New Jersey Pension Fund's actuaries “have completed preliminary audit reports that reflect the new required calculations (and), as expected, these changes increase pension liabilities and decrease funded levels for financial reporting purposes,” the bond document said. “This new method does not cause a change with respect to the calculation of the state's statutory liabilities or its funding or budgetary requirements.”
In a research note Tuesday, Standard & Poor's Ratings Services acknowledged the change in the GASB rules, saying that its “A” rating/stable status for New Jersey's general obligation bonds incorporates the effect of New Jersey's “weak pension funding.”
“Regardless of how the liability is measured, the state's record of underfunding its annual contributions to the pension system is at the root of its deterioration,” the S&P research note said. “The new pension accounting standards shed further light on what we already understood as a problematic feature of New Jersey's credit profile.”
The S&P report said New Jersey would be eligible for an A+ rating, but the “weakness in its pension funding levels and contributions have resulted in us assigning a rating one notch below that.”