As a lifelong resident of NJ, who appreciates the Garden State for more than its proximity to NYC, I don’t appreciate, but I can understand, the chart below that highlights NJ’s out-migration issue. We aren’t alone, but misery doesn’t like company in this case. There is almost no place like NJ’s beaches, but that alone is clearly not enough to keep people here, as NJ’s taxes, particular property taxes are making life here almost unaffordable. Money Magazine has NJ’s overall tax burden at only #9 among the 50 U.S. states (NY is #1), but the recent Federal tax changes will burden NJ’s residents to a greater extent because of the cap on the SALT deduction.

Unfortunately, NJ’s plight, and that of many other states, might continue to worsen when one looks at the current pension funding deficits.  NY, IL, CT, NJ, and ND “lead” the way in out-migration, and the pension systems of CT, IL, ND, and NJ all have funding deficits below 70% (actually, CT, IL, and NJ are <60% funded).  New York is the rare exception among the out-migration cohort with a 90%+ funded status. The poor funded status and growing contribution expense will continue to burden the residents of these states.

The economic activity that is produced annually from the benefits received from plan participants is incredibly important to local economies and businesses, as roughly 85% of the net benefit is spent locally. Obviously, these DB plans need to be maintained, but continuing to strive to achieve an inflated ROA is not the answer.  We need to go back to the future and a return to the basics, and manage these systems with an eye toward each plan’s specific liabilities before the markets break once again, which will set these plans and states back even further.