GSI Analysis: 25% of NJ Public Employee Pensions paid to out of state residents, far Above U.S. Rate of 10%

by William J. Smith, GSI’s Director of Communications & Media Relations

Are New Jersey’s public employee retirees remaining in-state or leaving for a more tax-friendly retirement?

That’s the question we asked after a recent news report from Illinois found that 71,000 retired public employee pensioners, roughly 18%, were collecting their benefits, totaling $2.4 billion annually, out of state. Tax-friendly Florida and Arizona, along with neighboring Wisconsin were the top destinations.  The news report cited a National League of Cities analysis that found 90% of the nation’s public pensioners remain in the state in which they finished their career before retirement.

Through an Open Public Records Act (OPRA) request to New Jersey’s Department of the Treasury, Garden State Initiative decided to take a look at public employee pension data for the state’s ten defined-benefit programs to see where New Jersey’s pension payments were headed.

Our analysis found that this year nearly $2.6 billion in pension payments, almost 25% of all payments, will be headed out of state, two and a half times the national rate.

As of July 1, 2019, a total of 332,556 retirees were collecting pension payments from the state, with monthly payments totaling nearly $950 million, or over $11 billion annually.

While 251,278, or 75%, of payments went to New Jersey residents, the other quarter was headed out of state, another indicator of NJ’s unaffordability. Our analysis of July’s payments found that over 80,000 of New Jersey’s retired public employees have relocated out of state, collecting over $215 million in monthly pension payments. Annually that represents a transfer of $2.6 billion out of the Garden State’s economy. 

The personal finance website Bankrate.com ranked New Jersey 48th when it comes to affordability for retirees. New Jersey’s tax laws present an all-or-nothing proposition for retirees. Retirement income under $100,000 is excluded from taxation, but report income of $100,000 or more and all of your retirement income is taxed at the normal rate. And we don’t need to tell you how New Jersey’s sky-high property taxes impact those on fixed incomes.

So where are those retirees heading? The top five destinations accounted for more than 55,000 pensioners collecting $153 million in July alone.

The top recipient was the Sun Belt state of Florida, where 25,000 checks, totaling over $70 million in July alone, were headed. Of course, Florida famously has no state income tax.

Next on the list was Pennsylvania, far from the Sun Belt, which received over 15,000 retiree deposits in July. Our neighbor to the west does not tax retirement income, including pensions.

We then found that many New Jersey retirees were heading down I-95 to North Carolina, which taxes retirement income at the flat income tax rate of 5.499%, but enjoys a far lower cost of living. Over 6,200 pension deposits were headed to the Tarheel State in July.  

Many New Jersey retirees opted to travel a little further down I-95 to South Carolina, where over 5,000 retiree deposits were received. Although South Carolina does tax pension income as normal income, with a top rate of 7%, the state has a $15,000 deduction for seniors receiving retirement income and boasts some of the lowest property tax rates in the country.

Rounding out the Top 5 of retirement destinations for New Jersey’s public employees was far from a warm weather retreat – New York. In July, nearly 4,000 Garden State retirees collected benefits across the Hudson River. Of note, income from retirement accounts or a private pension is deductible up to $20,000.

While some may debate which climate, financial or weather, drives retirement decisions, it is clear that a significantly higher percentage of public employee pension payments leave our state. Annually, nearly $2.6 billion that could be spent in New Jersey growing our economy and generating tax revenue through the purchase of goods and services are now being utilized elsewhere.