What’s 15% of $0?

There are a lot of people, mostly representing governments, who want you to think that there is no crisis in public pensions and there are a lot of people, mostly government workers, who want to believe them.  They have seized on two points of contention, both fallacious.

Point 1. Pension contributions from state and local employers aren’t blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.

Counterpoint: Of course they are.  That’s because governments get to low-ball their contributions since they have none of the funding rules applicable to public plans (especially after PPA) and all of the resources of a compromised actuarial profession funneling them their dodgy numbers arrived at through gimmicks like asset smoothing, open-amortization, and outdated mortality tables.

Point 2: Plans are making their earnings numbers…..and more.

Counterpoint: For now, with the substantial assistance of quantitative easings, that mask the real problems.  For example, New Jersey ann0unced that their funds made 15% this fiscal year but were silent on their liabilities which currently run at about $8 billion a year that has to be paid to current retirees with another $3 billion ready to pull that retirement trigger once the state raises employee contribution requirements for both their pensions and health care.  On top of this are the other current workers and vested terminees who, theoretically, have accrued benefits waiting for them.  All these liabilities increase at a frightening rate with COLAs, better-than-expected life expectancies, and benefits continuing to accrue unthreatened by recurring ‘reforms’ that t0 date have only applied to new-hires.

What is missing from these analyses (on both sides) is the critical component of pension-health: the sponsors ability and/or willingness to pay.  New Jersey is a fiscally corrupt state with 21 counties, 566 municipalities, 616 school districts, 486 local authorities and special districts, and a state bureaucracy which all, to varying degrees, have to repay campaign donors RIGHT NOW.  There is no money to spare for funding promises that aren’t collectible today so, with the assistance of a pliant actuarial hierarchy, New Jersey politicians continue to select their funding number which, for 15 years now, has been ranging between $0 and close to $0.  What’s 15% of $0?