Knowledge and Insights
Understanding Your Retirement & Benefits in a Government Plan
With another fiscal year-end (June 30th) in the rearview for the State of New Jersey’s Division of Pensions and Benefits (the Division), it is as good a time as any for plan members to brush up on their benefits. The Audited Comprehensive Financial Report for 2021 offers great insight into how members respective pension plans are being managed – including plan details, funding statuses and how your assets are being invested.
Now we know this likely didn’t make it to the top of most summer reading lists, so we thought we would provide some of the highlights:
- The Fiduciary Net Position increased by $19.3 billion to $104.2 billion. This represents the financial funds administered by the Division from which plan members’ benefits are paid (or will be for those not yet retired).
- The increase was what remained after deductions of $13.1 billion, primarily benefits paid, were taken from $32.5 billion in additions. Those additions came primarily in two forms - $10.1 billion from contributions (whether from plan members, employers, or elsewhere) and $22.4 billion from net investment income.
- Overall, existing investments contributed the most to the improved Fiduciary Net Position – delivering a 28.63% return on the year ended June 30, 2021. The right-hand chart shows broadly how the $100 billion portfolio had allocated plan member assets.
It’s worth noting that the numbers above are in aggregate as the Division administers various plans. The report offers plenty of additional details and schedules for each, including Public Employees’ Retirement System (PERS) which accounts for 34% of the total net position. Including the Teachers’ Pension and Annuity Fund (TPAF), which is the largest in terms of the calculated total pension liability, roughly 60% of the funds are earmarked for the nearly 700,000 plan members covered by said plans.
Mercadien Asset Management’s Jared Reilly, a CFP® professional, knows just how important these benefits can be to plan members’ retirement success. “For those planning clients who are fortunate enough to be covered by a pension plan – it plays an outsized role in moving the needle on meeting their financial goals.”
Considering PERS and TPAF account for 90% of the plan members yet to begin receiving their pension benefits and the importance they play in the retirement planning process, the pension payment option decision is a major one. “This is a big decision that’s cemented in place,” Reilly highlights, “so you really need to think carefully and consider all of the tradeoffs.”
Members ultimately choose one of nine ways to receive their retirement benefits with the differences mainly boiling down to one issue - what happens to your benefits when you die? And it’s not just a matter of who and how much: “The decision is complicated by the question of what happens should your beneficiary pre-decease you,” Reilly points out. “Some options lock-in a reduced benefit with others ‘bumping-up’ to the Maximum option should you outlive your beneficiary. Age, of both you and your beneficiary, is a major consideration.”
The maximum option, unsurprisingly, offers the highest benefit, but at the cost of leaving beneficiaries with bupkis. Reilly continues, “For those on their own it may be a no-brainer, but if you have children, a significant other, or other dependent, you really should be choosing the option that fits best into your overall plan. That means coordinating this decision with other important ones like when to file for social security benefits or whether you should hang onto that life insurance policy.”
A nod to those covered under the Police and Firemen’s Retirement System (PFRS) – for better or worse, the questions of how much to leave and to whom is predetermined. A surviving spouse/partner can expect 50% of your final compensation, while eligible children or parents can see anywhere from 15 -40% depending on the circumstances.
For the “too long, didn’t read” crowd, the Audited Comprehensive Financial Report provides plenty of detail on how your pension assets are being administered. And for plan members yet to start collecting their benefits, familiarize yourself with the options and how they fit into your overall financial situation.
Mercadien Asset Management provides financial planning and investment management services to help clients achieve long-term financial success. Should you have any questions about your benefits or plan, contact Jared Reilly, CFP®, Vice President at firstname.lastname@example.org or 609-689-2300.
DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business, tax or financial planning advice, and may not be used and relied upon as a substitute for business, tax or financial planning advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner, financial planner or attorney licensed to practice in the jurisdiction where that advice is sought.