Investment boom boosts New Jersey’s retirement plan
The New Jersey Public Employee Retirement Fund appears to have taken full advantage of Wall Street’s recent hot streak by generating nearly 30% annual return over the past fiscal year.
Fiscal 2021 annual investment return numbers are still under scrutiny, but according to the Treasury Department, they are the highest annual returns recorded by New Jersey pension fund managers in the past two decades.
Returns have also more than tripled the pension fund’s long-term assumption for the 7.3% annual investment return. They also marked a significant reversal from the previous fiscal year when the annual return was barely above 1%.
“Needless to say, we are pleased with the returns for fiscal year 2021,” said Shoaib Khan, acting director of the state’s investment division, as he detailed the unaudited return numbers during a public meeting on Wednesday.
Right place, right time
“It’s nice to see that the fund was well positioned to benefit from a constructive market environment,” he said.
The strong investment performance is due to the government increasing its employer pension contributions in recent years as part of a broader attempt to get out of a giant hole created when the government cut or suspended these payments.
It also comes after Governor Phil Murphy’s administration resisted calls for short state pension payments due to budgetary problems that sparked last year at the start of the coronavirus pandemic, so that the pension fund can take full advantage of the huge surge in investment returns.
Stayed on the ground
New Jersey recently committed to fully paying its annual actuarial pension contributions. However, long-term projections of future investment performance suggest that returns are likely to slide back to the bottom. This could put new pressure on New Jersey taxpayers to make up the difference if investment returns plummet due to the pandemic.
The $ 94.4 billion pension fund covers the retirement of approximately 800,000 active and retired government employees. It is funded from employee contributions, along with taxpayer-funded payments from their respective state and local employers, and monthly revenue from the New Jersey Lottery.
Last year, the investment returns of the state pension funds fell well below the rate assumed by the fund in the wake of a pandemic-induced sell-off. Meanwhile, the state lottery also stalled as the economy largely shut down to slow the rate of new COVID-19 infections.
The estimated market value of pension fund assets also fell significantly again last year due to the sell-off.
However, the unaudited final fiscal year 2021 figures, which were reviewed Wednesday by the State Investment Council, show that annual returns rose to an estimated 28.63% over the 12-month period ended June 30, 2021.
The strong investment performance outperformed the pension fund benchmark by more than two percentage points. It also pushed the 10-year returns to nearly 9%.
Private equity led the way in fiscal 2021, delivering estimated returns of 47.8%, according to Khan. Top performers also included public equity investments that produced returns between 34% and 44% and real assets that produced almost 30% returns, Khan said.
“We are pleased with the exceptionally strong contributions from most asset classes,” he said.
Last year, Murphy, a first-term Democrat, stuck to a multi-year start-up plan for retirement funding as the pandemic-triggered loss of revenue led to a range of budget cuts ranging from property tax breaks to K-12. school help had an impact on everything.
While some lawmakers called for a cut in pension payments to alleviate the state’s budgetary challenges, Murphy’s decision to continue the ramp-up plan ensured nearly $ 5 billion was pumped into the pension fund over the course of fiscal 2021, including lottery contributions. And when investment returns finally skyrocketed, those payments maximized the impact of the boom on the pension fund.
For fiscal 2022, the state has already made a flat-rate contribution of $ 5.8 billion to the pension fund and has budgeted a record total annual payment of nearly $ 7 billion, taking into account the expected lottery contributions.
The increased state pension payments in New Jersey were recognized in a recent report on trends in state pension funding released by The Pew Charitable Trusts.
The same report also outlined some of the challenges public retirement plans will face, as long-term investment returns from the pandemic will average around 6% – well below the assumed rate of New Jersey return.
Pew’s pension experts urged government policymakers to consider a number of tools to help manage expected future uncertainty, including “robust funding policies, plans that share profits and losses with employees and retirees, and stress tests to assess the impact of measuring risks on the balance sheets of pension plans and “state budgets.”