(TRENTON) – State Treasurer Elizabeth Maher Muoio announced that the Treasury Department today kicked off the start of the new fiscal year by paying the full state-funded portion of the $6.9 billion pension contribution slated for Fiscal Year 2022 (FY 2022). This marks the first time in more than 25 years that New Jersey is making the full Actuarially Determined Contribution to the Pension Fund, plus an additional $505 million contribution, and also the first time in years that the state has made a lump sum payment, rather than quarterly payments.
The Treasurer also announced that by making the contribution in one lump sum, the State is now expected to save taxpayers roughly $2.2 billion over 30 years, rather than the $1.5 billion in savings initially anticipated if the state had made quarterly pension payments this year.
“Today is a remarkable day for the State of New Jersey,” said Governor Phil Murphy. “When we started this journey more than three years ago, I made a promise to the hardworking public employees and retirees of our State. Today is not only the day we officially make good on that promise, it is the day we start filling in the hole that has been dug over the last 25 years. This budget is the first in a generation – 25 years – to make our full payment into the pension funds of our public workforce.”.
“After years of kicking the pension can down the road, a practice which has cost the state billions and billions of dollars, today we are officially turning the corner,” said Treasurer Muoio. “This problem was 25 years in the making, and will not be solved overnight, but thanks to the Governor’s commitment, and the collective determination of this administration and our partners in the Legislature, we are making the full contribution a year earlier than anticipated and putting an end to years of unmet obligations and substantial growth in the unfunded liability. Today is a milestone achievement for New Jersey.”
With July 1 kicking off the start of the new fiscal year, the state made a $5,796,973,000 lump sum contribution to the state Pension Fund today. The remainder of the total $6.9 billion payment, just over $1.1 billion, will come from State Lottery proceeds under a 2017 law (Lottery Enterprise Contribution Act), which mandates that a portion of Lottery proceeds be dedicated to the Pension Fund. Those payments will be made monthly throughout the fiscal year, as they normally are.
“Having pushed for years to see prior administrations make full pension payments, and make quarterly payments, today’s action—which we recommended--is the fulfilment of years of hard work on one of my top priorities,” said Senate President Steve Sweeney. “The system faced bankruptcy, pure and simple. Instead, the additional $505 million, together with the full 100% payment, helps ensure the solvency of the pension fund, and results in more than $2 billion in savings over 30 years. And that in turn leaves a greater portion of our general fund to go toward other pressing needs of the state. Every New Jersey resident stands to benefit from this action for decades to come, and I am proud beyond words of this accomplishment.”
“The pension payment being made today is historic, it’s an investment back into our people, and it honors the state's commitment to our hard-working civil servants,” said Assembly Speaker Craig Coughlin. “Fueling the promise of retirement security, this payment builds upon our pledge towards restoring the health of our public pension systems and ensuring full benefits to pensioners for years to come. Today’s contribution is another significant step in the right direction.”
For years, the State had short-funded the pension system or skipped payments entirely, drastically increasing the pension system’s unfunded liability and ballooning the minimum contributions required as determined by actuaries. Treasurer Muoio noted in budget testimony last year, that had the State been making the full required pension contribution over the last 25 years, this year’s contribution would only be roughly $800 million.
The FY 2022 budget that Governor Murphy signed into law on Tuesday includes a record total payment of $6.9 billion, which is comprised of the full $6.2 billion Actuarially Determined Contribution for FY 2022 (including Lottery proceeds) and an additional $505 million payment to help offset future contributions.
The State had been on a 1/10 ramp up plan as it worked its way up to meeting the full Actuarially Required Contribution and was initially slated to contribute 90 percent of the full pension contribution this year. In February, the Governor proposed accelerating the “catch-up” plan and making the first full pension payment since FY 1996.
The final budget signed into law included an additional $505 million payment that will mitigate the increase that was expected as result of the planned reduction in the assumed rate-of-return for FY 2023 and allow the State to make more level pension contributions going forward.