Amid news that the state's pension plan has lost $23 billion so far this year and other complications inherent to a defined-benefits plan for state workers, the Star-Ledger has finally (and begrudgingly) come to a logical conclusion: Retire This Pension Plan
From Sunday's editorial,
Barring some incredible rebound in the market, there may be no way the fund can ever be made solvent again. The state's contributions into that fund this year will be $1.1 billion. Those municipal contributions, the ones Corzine wants to postpone, would amount to a mere $540 million. It's not just that those contributions are a drop in the bucket. They're a drop in a bucket with a hole in it.
Just before Corzine took office in 2006, his old Goldman-Sachs colleague Philip Murphy headed a committee that did a comprehensive review of a system that, even then, was in deep trouble. The committee's final report said that "restoring integrity to the system is critical but ultimately the current structure of the benefit programs cannot be sustained over the long term (unless taxes are to be significantly increased or other spending significantly cut)."
Those were the good old days. We are now at a point where the system may not be savable with any conceivable combination of tax hikes and spending cuts. In fact, we could devote every cent of next year's state budget to the fund and it still would not be in balance.
Here is the situation facing the fund: It is somewhere in the neighborhood of $50 billion in the hole, and losing money when actuaries say it must gain 8.25% per year. Taxpayers are on the line for the difference. Add to that another $50 billion in unfunded health liabilities. Add to that an expanding state workforce and a teachers union that now has a mantra of "50k the first day" when headed to the negotiating table.
The private sector long ago learned that such a system is unsustainable in the modern economy. A 401(k) plan gives workers a guarantee that their money will be paid each year. It allows taxpayers to know how much they will be expected to pay, and it does not saddle future generations with debt they never had the benefit of considering.
At this point, a defined-contribution system is not only the best way out, but perhaps the only way.
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