Global pandemic ravages NJ public pension fund, burning billions of dollars

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The state’s public worker retirement system took a nearly $6 billion hit during the first four months of 2020 as the COVID-19 pandemic wrecks the global economy and rattles Wall Street.

Since the start of the current fiscal year on July 1, 2019, the state’s pension fund lost 2.5 percent over those 10 months, according to the State Investment Council, which oversees the massive retirement system covering seven funds and 800,000 current and retired state employees.

Leading into the pandemic and recession, the pension was valued at just shy of $80 billion, a figure that has now dropped to below $74 billion according to SIC documents. 

“The global economy has been shocked to a degree not seen since the Great Depression,” Corey Amon, who heads the state’s Division of Investment, said at the remotely-held Wednesday meeting.

From the start of 2020 through April 30, the pension fund shed $5.9 billion and posted a negative 7.05 percent return on investment.

But most of the hits were taken between Dec. 31, 2019, and Feb. 29, the SIC said. Since then, the state’s pension fund has suffered a loss of roughly half a billion dollars.

Amon noted that the April 30 numbers are preliminary, as there are lags on reporting of the fund’s alternative investments, such as real estate and investments in private markets.

“The short-term economic impact of the COVID-19 crisis has been materially more severe than the short-term economic impact of the financial crisis,” he said.

Meanwhile, revenue from the state lottery is likely to be $115 million short of the projected $1 billion annual contribution to the state pension, Assistant State Treasurer Dini Ajmani said at the meeting. That system of dedicated funding has been in place since 2017.

The state’s pension system is among the worst-funded in the country, the source of 11 of the state’s 12 combined credit downgrades spanning the Wall Street rating agencies.

As of June 30, the pension fund had enough to cover 40.4 percent of what it owes to workers—meaning the unfunded liabilities dropped from $130 billion to roughly $120 billion, the SIC said.

Gov. Phil Murphy’s 2021 budget, which was extended three months to start on Oct. 1, initially called for $4.6 billion into the pension system, still far less than the $6.1 billion that the state is actuarially required to pay each year.

That amount, part of the governor’s original proposal from February, would be reached by the 2023 fiscal year, which starts on July 1, 2022.

Murphy officials said that the administration plans to make the full pension payments for the current fiscal year, which now ends on Sept. 30, 2020, rather than June 30.

But almost $1 billion in pension payments will be delayed until October, under a new budget proposal laid out last week on how to balance the state’s books these next few months.

S&P Global predicted such a scenario in late April; anticipating delays in pension payments to balance the budget. And Fitch – aware of the state’s monetary stressors – dropped the state’s credit rating from A to A minus.

“As long as we make our payments – and that’s what we plan to do – I think we should be okay,” State Treasurer Elizabeth Maher Muoio said on Friday.