NJ pension liability vastly underestimated

From the NY Times:

Big Deficit Seen in New Jersey Pension Fund

A prominent member of the council that oversees investments by New Jersey’s pension funds said yesterday that the state has been vastly underestimating how much money it should have to pay for retirement benefits that have been promised to employees.

The council member, Douglas A. Love, said a more realistic calculation would show a $56 billion deficit — more than three times as much as the $18 billion included in the state’s most recent bond-offering statement.

Public employees’ unions and others have long accused New Jersey of mismanaging its pension funds. But in a presentation to the council, Mr. Love pointed to the use of what he said were inappropriate methods to calculate the value of the benefits promised.

“There is no financial enterprise in the world that is allowed to value its liabilities” the way New Jersey, and other public pension funds, measure the value of theirs, said Mr. Love, the chief investment officer for Ryan Labs Inc. in New York.

Mr. Love’s way of calculating the pension’s obligations is similar to the method a bank or an insurance company would use. New York City’s chief actuary, Robert C. North, has been using that method to show that the city’s pension deficit may be billions more than shown in official projections.

Nearly all public pension funds use traditional actuarial practices, which have been coming under increasing scrutiny in recent years from economists and some actuaries who say those practices vastly understate the benefits that have been promised.

Mr. Love’s new analysis comes at a time when Gov. Jon S. Corzine and the Legislature are struggling to close a $2 billion budget shortfall, trim the state’s more than $30 billion debt load and rein in property taxes.