Credit: (Ervins Strauhmanis via Flickr)

New Jersey’s public-worker pension fund saw its investment returns rebound during the fiscal year that ended last month, but just how much remains to be seen.

The latest preliminary figures for the nearly $90 billion pension fund indicate net investment returns were running slightly above 5% through the end of May, according to performance data reviewed Wednesday during a State Investment Council meeting.

Performance data for important private-market investments is still pending, but the preliminary figures show the pension fund was on course to easily surpass the annual returns recorded during the 2022 fiscal year.

That year saw returns sag into negative territory as financial markets were roiled by inflation, an overseas war and other factors.

While the final figures for the latest full fiscal year remain pending, June 2023 was a good month overall for public financial markets, suggesting there could be additional room for improvement when it comes to public-worker pension-fund returns.

However, whether the annual returns for the full 2023 fiscal year end up getting closer to the pension fund’s 7% assumed rate of return remains to be seen.

“As soon as we can, we will be reporting the June 30th numbers,” Shoaib Khan, director of the state Division of Investment, told members of the investment council during Wednesday’s meeting.

Controversy over fossil fuels

Meanwhile, the state pension fund’s investments in the fossil-fuel industry continued to draw criticism from climate-change activists who spoke during a public comment portion of the meeting. They suggested the fund’s returns would be better if the state were to divest altogether from fossil fuels, which is something climate activists in New Jersey have been demanding for the past several years.

“I’m looking forward, at some point, to retiring, but I’m concerned that my pension is not growing at a rate to afford me, and my colleagues, a reliable income into our older years,” said Pranita Bijlani, a longtime public-school teacher and member of the DivestNJ advocacy group.

The preliminary figures show the pension fund was on course to easily surpass the annual returns recorded during the 2022 fiscal year.

“I’m just very concerned that fossil fuels present too much risk, for too little return,” Bijlani told members of the investment council.

New Jersey’s public-worker pension fund covers the retirement benefits for an estimated 815,000 current and retired government workers. It operates separate from the state budget and is funded with regular contributions from both government workers and taxpayer-funded employers.

The Lottery angle

The state’s annual pension contributions are also supported by dedicated revenues from the New Jersey Lottery, which topped $1.1 billion during the 2023 fiscal year, according to new figures discussed during Wednesday’s meeting.

According to law, the state’s pension contributions are made on a quarterly basis, while the dedicated revenue from the Lottery is paid monthly. State pension-fund assets are also managed on a day-to-day basis by the Division of Investment and outside fund managers hired by the state under the supervision of the investment council.

The latest preliminary performance figures indicate investment returns topped 8.6% over the past three years, and 6.2% over the past five.

The preliminary performance figures for those investments covering the first 11 months of the 2023 fiscal year indicate investment returns hit 5.3% through the end of May.

During the 2022 fiscal year, which ended on June 30, 2022, pension-fund investments generated net negative returns of 7.9%, according to the investment council’s latest annual report. Total pension fund value also dropped below $85 billion as of the end of that fiscal year, according to the report.

Not set in stone

Khan discussed during Wednesday’s meeting some of the recent bright spots as the outlook for investment returns has rebounded, including the tech sector. But he also stressed that some private-market asset classes report returns with as much as a quarter lag, so the final numbers for the overall pension fund are expected to change, although by how much is not yet clear.

“I want to emphasize that this is preliminary performance data,” he told investment council members.

And while investment-return figures for a single fiscal year are important to track, the pension fund’s long-range performance provides a more comprehensive view. To that end, the latest preliminary performance figures indicate investment returns topped 8.6% over the past three years, and 6.2% over the past five.

Looking back even further, investment returns were running 7% over the past 10 years, and 7.24% over the past 20, according to the latest preliminary performance data.

The fiscal 2024 spending plan is the third consecutive state budget to include a full actuarial pension contribution.   

The potential for a return to net-positive returns during fiscal 2023 comes as the state in recent years has resumed making full employer pension contributions as calculated by actuaries, after years of shorting those annual payments or, in some years, making no payment at all.

Gov. Phil Murphy and lawmakers earmarked $7.1 billion in pension contributions, counting the Lottery revenues, in an overall $54.3 billion budget enacted late last month for the 2024 fiscal year, which started July 1.

The fiscal 2024 spending plan is the third consecutive state budget to include a full actuarial pension contribution.

But to undo all of the damage caused by prior underfunding, state pension contributions need to remain at or near the current level through the 2040s, according to the latest long-range projections.