Turbulent Wall St. erodes state pension funds $4 billion drop since July bodes ill for taxpayers' burden down the line Friday, February 22, 2008 • BY DUNSTAN McNICHOL • Star-Ledger Staff New Jersey's underfunded pension funds, already billions of dollars short of what they need to cover future retirement benefits, have been battered by stock market turmoil on Wall Street and overseas, a report released yesterday shows. As of Jan. 31, seven months into the current budget year, the pension funds were worth $78.1 billion, $4 billion less than when the budget year began July 1. Driving the losses were declines of 6.45 percent in the fund's domestic stock holdings and 9.02 percent in international stocks, William Clark, director of the state's Division of Investment, told members of the State Investment Council at their regular meeting yesterday. "Clearly, January was a tough month," said Clark. Overall, the funds' investment return for the fiscal year is -1.26 percent. Unless returns surge in the final five months of the budget year, the losses will haunt future taxpayers because of a complicated formula actuaries use to determine how much taxpayers should put into the system each year. It assumes the funds will earn an average of 8.25 percent each year. Whenever investment returns fall below that average, taxpayers are tapped for the difference. This year, for instance, the state was scheduled to deposit $2.2 billion into the accounts to cover benefits for 700,000 government workers and teachers and to start paying down a $24.8 billion deficit. Instead, lawmakers agreed to make 50 percent of the required contribution. Next week, Corzine will propose again making only half the required contribution in the budget he is scheduled to present to lawmakers on Tuesday, officials briefed on the proposal said yesterday. Orin Kramer, chairman of the Investment Council, said the current setbacks should not be viewed in isolation from prior years' investment gains. "For the last several years you've had extremely attractive returns that were above target rates," he said. "You always have to look at this in a long-term perspective." Investment gains have exceeded the 8.25 percent target in each of the past four years. The growing deficits in the pension funds are one reason Corzine has proposed retooling the state's finances by raising tolls on New Jersey highways, borrowing $38 billion and paying down state debt. Over the past five years state officials have attempted to mitigate losses in the stock market by moving billions of dollars out of domestic stocks and investing in alternatives like hedge funds and real estate. Hedge funds also recorded losses of 1.29 percent for the current fiscal year, Clark reported yesterday. Dunstan McNichol may be reached at dmcnichol@starledger.com or (609) 989-0341. © 2008 The Star-Ledger. Used by NJ.com with permission.