New Jersey’s Pension Fund is reporting its highest investment returns in two decades.
The strong showing by the state’s pension fund came days before the state Department of Treasury announced increased revenue collections as New Jersey took in $4.6 billion in revenue from the major taxes for September, up $1.1 billion, or 31.6%, above September 2020.
At a recent meeting of the State Investment Council, Treasury’s Division of Investment reported that the state pension fund generated a final, unaudited return of 28.6% for the 12-month period ending June 30—a rate of return that far eclipses both any annual return on record for the last 20 years and the 7.3% statutory assumed rate of return for fiscal year 2021.
Additionally, the fund outperformed its benchmark of 26.3% by 235 basis points, the state’s Department of Treasury said.
State Treasurer Points to ‘Historic Year’
“This has been a historic year for New Jersey’s pension fund, both in reaching the milestone of making the first 100% actuarially determined contribution in 25 years, and now, with today’s news regarding our returns for the year,” said State Treasurer Elizabeth Maher Muoio in a press statement.
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“Taking a look at the 20-year snapshot, this year’s returns dwarfed any annual performance over the last two decades, far surpassing the next highest return, which was 17.97% in 2011,” she added.
The pension fund’s fiscal year 2021 return increased the fund’s total unaudited market value to an estimated $94.4 billion as of June 30.
$6.9 Billion Pension Payment Gives Added Boost
The Department of Treasury said that the fund’s strong performance paired with the state’s record pension payment of $6.9 billion for fiscal year 2022, will further strengthen New Jersey’s pension fund.
“We are pleased with the Fiscal Year 2021 returns, both in absolute and relative terms, as well as the broad participation and contributions across asset classes,” said Shoaib Khan, acting director of the Division of Investment. “The fund was well positioned to benefit from a constructive market environment, albeit a volatile one.”
The Division of Investment noted that the pension fund numbers were unaudited and may require adjustments.
Treasury: Revenue Collections Up
For the current fiscal year, the state treasury department has collected $7.4 billion so far, a 31.3% increase over the same three months last year, Treasury said in an Oct. 15 press statement.
For September, Treasury reported that Gross Income Tax (GIT) collections totaled $1.9 billion, up $257.6 million, or 15.6% above last September. Year-to-date GIT collections are at $3.1 billion, an increase of $682.6 million, or 28.6 %.
GIT collections are dedicated to the Property Tax Relief Fund. Treasury attributed the growth in GIT collections to employee withholding collections bouncing back from weakened pandemic levels and refund levels dropping substantially. Treasury said refund levels returned to normal for this time of year after delayed taxpayer filing deadlines last year.
Sales Tax, Corporation Tax
Sales and Use Tax collections saw a 10.3% increase for the month of September. Treasury took in $935.7 million, an increase of $87.3 million, or 10.3% above the prior September. Treasury said that due to the one-month lag in the reporting of sales tax collections, September revenue reflects consumer activity in August.
Corporation Business Tax (CBT) revenue increased as well in September with the state taking in $1.0 billion in CBT, an increase of $385.2 million, or 60%—marking the strongest ever September collection for this tax, Treasury said. For the fiscal year to date, CBT collections totaled $1.3 billion—a $450.8 million increase, or 57.5% above the same period last year.
Sales and Use Tax collections are the largest General Fund revenue source, while Corporation Business Tax is the second largest, according to Treasury.
Revenue Collections Are Encouraging, But…
“Robust revenue collections to date are encouraging. However, Treasury expects FY 2022 collections growth to moderate into the winter months as the substantial federal income stimulus fades,” the Department of Treasury said.
Additionally, Treasury predicted that the recent establishment of various tax relief programs, including the Earned Income Tax Credit, the retirement income exclusion, and several college savings programs, will dampen revenue collections in the spring.
The state government should pay-off some of the State’s enormous debts (including pension contributions) while there is a temporary tax collection gusher. Conversely, don’t increase spending: the tax gusher will stop. Be wise and take advantage of a rare opportunity.