Teachers' pension fund shows greater shortfall Monroe joins trend of 80-minute classes Friday, March 02, 2007 • BY DUNSTAN McNICHOL• Star-Ledger Staff New Jersey's largest pension fund slid further into arrears last year, even as Gov. Jon Corzine steered $600 million into the retirement account, a state report re leased yesterday shows. The annual accounting of the Teachers Pension and Annuity Fund, the $35 billion fund set up to pay the cost of retirement benefits promised to teachers and board of education employees, found it has only 78 percent of the amount actuaries estimate it needs to cover the retirement benefits promised to its 225,000 working and retired members. To keep pace with mounting costs, the state should deposit $1.3 billion into the fund this year, the report says. But the budget Corzine presented to lawmakers last week includes only half that amount, meaning the state is likely to continue amassing a bigger debt over the coming 12 months. "We're still playing catch-up," Scott Porter, an actuary for Milliman Consultants, told members of the Teacher's Fund board of trustees during the annual assessment of their fund's financial condition yesterday. Porter's presentation to the board included graphic details about the mounting cost taxpayers are facing for years of underfunding by state officials. Of the $10 billion total shortfall actuaries calculate the fund faces, almost $2 billion arose from skipped state payments, Porter said. Repaying that $2 billion would cost taxpayers more than $115 million a year for the next 30 years, Porter's report indicates. But those payments are not likely to materialize. Instead, the long-term debt is likely to continue growing, he said, as the state continues to underfund its pension requirements. The state budget enacted last summer paid only 57 percent of the amount due into the fund, and Porter said that move alone added $29.9 million to the tab facing taxpayers for the upcoming year. In his new budget plan, Corzine includes only half the $1.3 billion the state should pay into the fund. The remainder, about $650 million, will be added to the burgeoning state tab. Brendan Gilfillan, a spokesman for Corzine, noted that Corzine has poured more into the pension system than previous governors had done for a decade. "In his first budget, the governor contributed more to the pension system in one year than in the last ten years combined, and the governor has again proposed increasing the contribution for FY 2008," he said. "Additionally, the re cent agreement with the state's largest public worker union contained significant structural reforms that will yield hundreds of millions of dollars in cost savings for the pension system." Corzine reached a union settlement that caps the salary for which new employees can earn pension credit, and boosts the amount cur rent workers and retirees must pay toward their retirements. Porter said those changes will likely have only minimal effect on the fund in the near term. "Twenty years from now, then you'd start to see some of this," he said. Corzine has pledged to state employees' unions that he will put at least $1 billion into the state's seven pension funds each year, but that is less than Porter's report in dicates the teacher's fund alone would need. Across all seven of the state's retirement accounts, the funding shortfall is $24.8 billion, up from $18 billion a year ago. With about $35.1 billion in hand, the teacher's pension fund is in no danger of running short of the amount needed to meet its annual pension payments for the short term. According to the report, retirement payments and other benefits totaled $2.255 billion last year, an increase of about 9.7 percent from the year before. The report, which covers the year between July 1, 2005 and June 30, 2006, said the state has benefited from three years of solid investment gains, which have exceeded the 8.25 percent returns actuaries assume the account will make each year. However, the state's pension systems are still hurting from the lingering impact of poor investment performances in 2002 and 2003. The state's tab would climb even faster under terms of a pension reform proposal awaiting Cor zine's signature. That measure (S- 17) would require the state to use Government Accounting Standards Board formulas for calculat ing the state's required payment into the fund each year, a formula that would add $270 million to the state's required payment this year. Gilfillan said the new legislation is still under review, so it is not known whether that provision will survive in the final version Corzine signs. "The pension reform bill is a complex piece of legislation and is undergoing the same review that we give to all legislation of this type," he said. Dunstan McNichol may be reached at (609) 989-0341 or dmcnichol@starledger.com. © 2007 The Star-Ledger. Used by NJ.com with permission.