- The New York, New Jersey and Connecticut tri-state region is dependent upon New York City.
- The strength of state pension systems varies.
- Improvements are being implemented.
The New York-New Jersey-Connecticut tri-state region is, in large part, economically rooted in New York City — access to diverse, high-paying jobs throughout the metro area drives state property wealth and income metrics that rank among the top in the country. However, differing benefit structures and funding approaches have seen the health of each state’s pension system diverge over time.
As they currently stand, we view New York’s pension system as vastly superior to that of Connecticut and New Jersey, with a stronger funded ratio and far lower annual payments relative to budget. Although Connecticut’s funded ratio is lower than New Jersey’s, we consider Connecticut’s pension system more manageable, as full annual required contribution (ARC) funding has proven less onerous.
Favorably, all three states have enacted pension reforms in recent years, implementing important benefit changes such as increased retirement ages and decreased cost-of-living adjustments (COLAs). In New York and Connecticut, reforms created new plan tiers for future employees, the savings of which will accrue over the long haul.
Reforms, coupled with increased scrutiny on pensions and their funding, have also resulted in improving funding discipline, particularly in New Jersey and Connecticut, where ARC funding had slipped in favor of short-term budgetary relief. We believe that, while in some cases extremely painful in the short-term, improved annual funding is key to the long-term sustainability of these pension plans and that full ARC funding should lower unfunded liabilities in the long-term, provided various actuarial assumptions are met.
Sources: Fiscal 2013 State CAFRs, Fiscal 2014 State Budgets, Fiscal 2015 Proposed State Budgets
There are risks associated with an investment in a municipal bond fund, including credit risk, interest rate risk, prepayment and extension risk, and geographic concentration risk. See the Fund’s prospectus for information on these and other risks associated with the Fund. In general, bond prices rise when interest rates fall and vice versa. This effect is more pronounced for longer-term securities.
Income from tax-exempt funds may be subject to state and local taxes and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal and state income tax rules will apply to any capital gain distributions and any gains or losses on sales.