New Jersey's pension situation

Orin Kramer and William G. Clark are between them responsible for managing the state pension funds in New Jersey.

Kramer is the Chair of the State Investment Council, and Clark is Director of the Division of Investment.

Daniel Strachman, in a guest opinion column published Friday by The Alternative Press, urges the state (which, due to Tuesday's election, has a new Governor) should fire them both.

So what is the pension situation in New Jersey, that would incite such a call? Here is a primer, more than a month old but serviceable.

Paragraphs 8 and 9 of that story are key:

The latest available figures from the state, released in spring, showed state pension funds were worth $77.7 billion as of June 30, 2008, about $34.4 billion short of obligations. Similarly, the state is obligated for $50.6 billion in future post-retirement medical benefits that it annually funds out of the budget.

Following last year's economic turmoil, the latest available figures from the state Division of Investments show the state's pension funds were worth $66.7 billion Aug. 31, 2009.

Corzine' administration made some changes aimed at slowing the expenditure of pension funds, such as an increase in retirement age. But the problems have been developing through at least a couple of turns of the boom/bust cycle. In July 1997, New Jersey sold $2.75 billion of pension bonds in July 1997. Then-Governor
Christine Todd Whitman said at the time that it would be crazy "not to do this." She said the bonds, which paid a fixed interest rate of 7.64%, would keep the system fully funded and save the taxpayers money.

The fund has earned 4.8% annualized return since the bond sale. So it paid 7.64% to acquire the capital with which it has been earning 4.8%? Does that sound like a bad plan to you? Me, too.