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According to a new report from Sunlight Policy Center of New Jersey, the teachers pension plan (Teachers’ Pension and Annuity Fund, or TPAF), is going to run out of money in 20 years. This is in spite of Gov. Phil Murphy’s state budget allocations, which last year included a $6.9 billion payment to pension systems out of a total $44.8 billion budget.
Here’s Mike Lilley:
At the end of FY2022, the teachers’ pension plan (TPAF) was 33.9% funded, meaning there was 34 cents set aside for every dollar owed to retirees. Because TPAF is structurally unsound, poor investment returns forced TPAF to sell $1.89 billion of assets to make the annual payments to retirees. That’s why a recent Urban Institute study placed TPAF in the “Deep Red” crisis category and projects that it will run to of money in 20 years.
But rather than do the hard work of fixing TPAF, Murphy chooses to pour billions of good (taxpayer) money after bad — just as his biggest political supporter, the NJEA, wishes. They both want to pretend that by making the full required contribution, TPAF is OK. But the numbers show TPAF is not OK.
How “not okay” is TPAF? And what can New Jersey lobbyists and legislators do to protect teachers’ retirement savings?
We’ve known for a while TPAF is in trouble and “full” pension payments won’t save it. In March Sunlight reported that the Urban Institute rated TPAF as one of the nine worst pension funds in the country and would become insolvent in less than 20 years, meaning teachers depending on that income stream would be burned. But the market’s decline, explains Lilley, places the funded ratio “likely below 33% by calendar year-end (December 31, 2022).” And that’s with even with dedicating 78% of New Jersey’s annual lottery proceeds. TPAF is “structurally unsound”—as a Goldman Sachs alum, Murphy must know this—but he won’t acknowledge it because “the NJEA wants to hide the truth from teachers and pretend that making the full required contributions means everything is OK….With his eyes on a run for national office, Murphy is happy to play along.”
Last year Bellwether, a national non-profit committed to educational equity, surveyed teacher pension plans. New Jersey ranked at the bottom of the pack, 50th of all states and the District of Columbia. Only Illinois ranked worse in meeting the needs of teachers and protecting taxpayer interests:
What should we be doing to help our teachers?
We need to reform our pension system by moving from a defined benefits plan—where teachers have to pay in every year even though they are not vested until after ten years service— to a defined contributions plan, like a 401K, that allows teachers mobility and financial security.
Not convinced? Just ask NJEA executives who don’t depend on TPAF. They have their own pension plan, which Lilley has explained is over-funded, with $1.37 put away for every dollar owed. (Note: the chart below is from Sunlight’s 2020 report; currently TPAF is funded at 33.9%.)
Lilley told Politico, “Teachers need to know this and need to demand better. They don’t realize what a bad deal they’re getting. … Teachers pensions are inferior and at risk.”
That’s true. “Full” pension payments aside, we need to offer our teachers a better retirement plan than a pipedream.