NJ Treasurer to Raise, then Lower, Assumed Rate of Return

Move to help reduce costs for state, local governments.

To aid New Jersey’s troubled $76 billion pension system, Acting State Treasurer Elizabeth Maher Muoio plans to increase the expected rate of return, then gradually reduce it again.

Reuters reports that the move, which will first boost the rate of return from 7% to 7.5% in fiscal 2019, then lower it to 7% in fiscal 2023, looks to temporarily dodge higher costs involved with the lowering of assumed rates.

Once implemented, the new rate is projected to save roughly $238 million for the state and more than $400 million for local governments in the near term.

In November, the pension system’s rate of return had been cut from 7% to 7.65% by former Treasurer Ford Scudder. However, Muoio, whom New Jersey Gov. Phil Murphy appointed to acting state treasurer in December, argued that the cut would be costly for local governments.

According to NJ.com, additional costs at a 7.65% rate would mean an extra $52 million for the state, and $91 million for local employers.

The move comes at an interesting time, where due to poor investment returns and the growth of underfunded statuses,  most states are lowering their assumptions rather than increasing them. In addition, Murphy—who succeeded Chris Christie in January—is struggling with a shortfall predicament as his first budget proposal will take place later this month.

While the state’s five pension funds performed well in fiscal 2017, returning 13.07%, New Jersey is one of the worst-funded pension plans in the country, with a total funding ratio slightly below 49%.



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