New Jersey Pension Funding Will Be ‘Challenging,’ Fitch Says

New Jersey’s ability to move toward full pension contributions will be “challenging” and may conflict with goals such as controlling property-tax growth and funding schools and infrastructure, Fitch Ratings said.

Governor Chris Christie’s budget for the fiscal year that ends June 30 funds only 14 percent of the pension payment recommended by actuaries, even after his benefit changes enacted last year, Fitch said in a report today. Pension demands will rise if the state fails to achieve its 8.25 percent assumed return on investments, the company said.

New Jersey’s pension funds, with $67.2 billion of assets, returned 1.7 percent last year as gains from debt, private-equity and real estate investments tempered losses from global stocks. The funds have an annualized 10-year return of 5.1 percent, according to reports released last week by the treasury’s investment division.

The state’s estimated pension-funding deficit fell to $36.3 billion from $53.9 billion after passage of Christie’s benefits plan. The gap then swelled $5.5 billion to $41.8 billion for the 12 months through June after Christie skipped a pension payment.

“Fitch’s report shows again why pension reform was so vital,” Andrew Pratt, a spokesman for Treasurer Andrew Sidamon-Eristoff, said in an e-mail. “The unfunded liability for fiscal 2011 would be $20 billion higher if pension reform had not passed.”

Pension Changes

The bills Christie signed in June raised requirements for early retirement, boosted employee contributions to pensions and health care, increased the minimum retirement age for new employees to 65 from 62 and froze cost-of-living increases.

A 2010 law required the state to begin phasing in full payments over seven years after a decade of lapsed funding. Christie, 49, a first-term Republican, this year budgeted $484 million for a payment. Actuaries recommended the state put in $3 billion.

New Jersey’s unfunded pension liability will continue to grow because of the failure to make the full contributions until fiscal 2018, Fitch said. The company rates New Jersey’s general-obligation debt AA-, its fourth-highest grade.

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