Public pensions are collapsing in part because of flawed actuarial methods.
Ivory tower concepts like believing the sponsor will be put in what they’re told to put in don’t work in states like New Jersey. But, beyond that, presuming that you will earn 8% on phantom assets could require you to earn 16.67% on what you actually have. Taking the most basic example:
Let’s say you want to receive $1,000 per year for five years and you have 5 years to put in your money. Assuming you get 8% interest then $681 is your contribution number per this spreadsheet.
But what if after year 3 you expect to have $2,388 but actually have $1,500 (63% funded)? Will you still get your $5,000 in total payouts? No. According to this spreadsheet you would only get $3,625 assuming you continue to make 8% earnings from year 4 on.
In order to get that $1,000 annual payout you would need to start getting 16.67% trust earnings which is essentially what a plan as badly funded as New Jersey’s is assuming when they predict everyone will get paid out.
Burypensions Blog 
Posted by Tough Love on February 1, 2012 at 3:27 pm
John, Interesting, but no revelation here . If you’ve got $1,500 vs $2,388 after year 3 you obviously earned a lot less than 8% in the first 3 years (actually you earned a negative return), so it’s not at all surprising that you would need to make up for that with a very high return in the remaining years.
Perhaps it would be more helpful if you allocated some of your efforts to show why (and by how much) Public pension formulas should be reduced so that “total compensation” (pay + pensions + benefits) is no greater in comparable Public Sector vs Private sector occupations.
Posted by burypensions on February 1, 2012 at 3:51 pm
To me this was revelatory. It explains why funded ratios keep going down in underfunded plans even when trust earnings hit their mark.
The drop to 1500 needn’t have been caused by only earnings. It could have been some combination of undercontributions (ala NJ) or a stock crash. The point is that, however the plan got to that low funded ratio, even assuming continued 8% gains won’t dig it out. It goes to a fatal flaw in the theory behind commutation functions and pension funding.
Posted by Tough Love on February 1, 2012 at 4:36 pm
John, In your prior discussion (re-calculating the real NJ funding level to be in the 30-40% range) you responded to my comment with the litany of gimmicks not appropriately built into the actuarial assumptions for properly valuing their liabilities. I believe because of this the ACR calcs are woefully inadequate EVEN IF the target rate for discounting Plan liabilities was met.
Posted by ANTHONY F. MISKOWSKI on February 1, 2012 at 7:13 pm
John very interesting analysis as was your computation on the longevity of the plans. Thanks so much for your insight into these issues for so long.
I wonder where we may get a copy of the referenced Fitch report.
Tony Miskowski
Secretary
CWA Local 1033
Posted by burypensions on February 1, 2012 at 7:24 pm
Tony,
It came off the Fitch Wire:
http://www.fitchratings.com/web/en/dynamic/articles/Report-Affirms-NJs-Underfunded-Pensions-to-Continue.jsp?cm_sp=homepage-_-FitchWire-_-Report%20Affirms%20NJs%20Underfunded%20Pensions%20to%20Continue
with no link to any report but they do give a name to contact. I’m guessing you may have to be a subscriber to get whatever report they may have come up with.
Posted by Larry Littlefield on February 1, 2012 at 8:03 pm
The rate of return on nothing is zero.
At some point the only way a plan can return to health, over a very long time, is Paygo. Whatever returns you get rebuild the fund.
Posted by muni-man on February 2, 2012 at 10:22 am
The day the state tries to pay for these plans via Paygo is the day the start of the tax revolt will officially begin. No way TP’s are gonna put up with that crap.
Posted by Maria Jean on February 2, 2012 at 8:01 am
I’m confused–How are the checks going out if the fund is not properly funded? Where will the tipping point occur? Seems to me that there is talk on here and everywhere else of a collapse but that could happen 30 years from now well past my time. What gives?
John, thanks for making the tables easy enough for me to understand. Wow, a visual speaks a thousand words but according to those tables, its possible the money may have run out in theory–but the pensioners keep getting their checks and in a lot of cases are double dipping in another position.
Posted by Anonymous on February 2, 2012 at 10:51 am
Maria Jean,
Checks are going out because it’s a ponzi scheme and new money (about $4 billion from employees and taxpayers) is coming in to pay the $8 billion owing each year now (and that $8 billion is going up fast). They say there’s $67 billion left in the plan but that’s not enough to pay off retirees which is important since, in theory, when you hit retirement there should be enough money to pay what you were promised for the rest of your life without further contributions.
In NJ, that’s not close to the case and the easiest way to view it is if you were going to buy an annuity. Let’s say you had $67,000 with which to buy an annuity. Here’s a good website that gives quotes:
http://www.immediateannuities.com/
For a 68-year old with a 68-year-old spouse, $67,000 would buy a monthly payout of about $417 ($5,000 annually) when in NJ we need $8,000 annually. Now consider that those $67 billion in assets which aren’t enough to annuitize current retirees are supposed to pay the pensions of another 500,000 people who aren’t retired yet and who have already pumped tens of billions of their own contributions into this plan (and will likely want that money back when bankruptcy comes) and you see the real state of the deficit.
Posted by Javagold on February 2, 2012 at 11:12 am
on a long enough timeline, the survival rate of everyone drops to ZERO……
Posted by Eric on February 2, 2012 at 1:02 pm
Anonymous and Javagold:
I think Maria Jean understands the concept, but wonders if she will be OK in that she believes that the “Day of Reckoning” will be long after she is gone from the system.
Does anyone care to give her an approximate time frame for a collapse?
Eric
Posted by MJ on February 2, 2012 at 3:37 pm
Eric, actually I was wondering what the relevance of predicting a collapse has on the current retirees as time is a relative concept. Doom and gloom all over the blogs but with all of these so called people in the know no one has offered a definitive timeline. I could care less about the pension system. However, if and when it does collapse it will surely affect all of us in one way or another. Why talk about a collapse it really isn’t going to happen? Seems silly other than to generate blog posts.
Posted by Tough Love on February 2, 2012 at 4:34 pm
I’ll take a shot…….
In about 5 years the only funds left in the Plan will be the actual contributions of those still active, as well as the yet unpaid-out contributions of those already retired. Clearly the actives will protest using THEIR contributions to pay current retirees (worsening the probability of payout for them).
Plan assets will actually run to zero about 5 years later in which case continued payout will be on a paygo basis and certainly the taxpayers will not stand for the increased taxes necessary to continue pension payout FAR FAR greater than what they could ever hope to get..
Posted by muni-man on February 2, 2012 at 5:14 pm
Paygo will never happen, not a chance! I’d guess annual payouts would be around $12B then. And they’re gonna try to put that millstone on 2-2.5M private taxpayers at an annual average added cost to them of $5-$6K/yr. forever?? Halley’s Comet will reappear (2061) before that ever happens.
Posted by MJ on February 2, 2012 at 5:55 pm
Again, regardless of if and when the plan actually fails, this situation is different than a private company or private plan in that the government has the authority to levy taxes to pay for things. The government isn’t limited by economics or a free market. As taxpayers, we don’t get to pick what we want to pay for and what we don’t. In the private world, we can decide where to spend our dollars. To say that the taxpayers won’t stand for it doesn’t make any sense b/c most taxpayers are connected to their homes, families, jobs, businesses, etc. here in NJ. Really, what recourse would any of us have if taxes went through the roof to pay for this folly? The public sector workers are tied into it also as their taxes would go up as well. The problem is that these types of systems are difficult to reform as the public servants have become the public masters who don’t have to answer to anybody. In essence, they are the government. After all, the taxpayers have stood for it this long and I believe that our elected leaders have missed the opportunity for any real reform.
Posted by Javagold on February 2, 2012 at 5:58 pm
simple math will take over……1 + 1 always equal 2 …and anything multiplied by 0 always equals ZERO
Posted by muni-man on February 2, 2012 at 6:39 pm
That’s what gooberment would like the sheeple to believe – that they have ABSOLUTE control. Wrong!! The private sector outnumbers gooberment almost 6-to-1, and when they finally have had enough of the ever-increasing gooberment gouge that is seriously threatening their economic well-being, they’ll simply refuse to pay en masse. Do you seriously think folks in NJ are gonna cough up $5K, maybe a lot more every year, to keep pensions flowing for the publics?? Absolutely no way, and the pols know this for sure.
As for publics paying taxes, that’s fundamentally akin to a transfer payment they make into the hopper which feeds them. It goes right back to them eventually.
Posted by MJ on February 2, 2012 at 6:59 pm
How will we as taxpayers, not pay? If I don’t pay my mortgage/taxes they will take my house. When I go to work, taxes are automatically deducted from my check. When I buy something at a store I don’t have a choice in the sales tax. I would question the 6-1 ratio of private to public. Seems to me hardly anybody works in the private sector anymore. Most families have at least one spouse in the public sector and sometimes both. I meet a lot of people in my line of work and I make it a point to ask what folks do for a living—most have at least one spouse, parent, partner, etc. in the public sector. I’m not saying that folks are going to want to pay an extra 5k a year but don’t see any way to stop the increases. Tax bases may narrow and tax collection may go down but for us working folks, there will always be something to take.
Posted by Tough Love on February 2, 2012 at 7:12 pm
Quoting MJ …”
The government isn’t limited by economics or a free market. As taxpayers, we don’t get to pick what we want to pay for and what we don’t.”
Although you didn’t say it in so many words, it seems clear you are a Civil Servant and are concerned your promised pension may not be there for you. I believe you indeed have rightful concerns.
While technically you may be correct in your quote above, the likely way changes will come about is 2-fold:
(a) the “actives”, realizing that the gig is up will support change, likely a change to a true DC Plan to guarantee the future contributions cannot be diverted to retirees, and
(b) the politicians will switch sides (from having supported the Unions and their excessive pensions & benefits) rather quickly when the Private sector taxpayers make it clear that either they support radical Plan reductions or get voted out of office.
Posted by MJ on February 2, 2012 at 7:24 pm
TL, you think everyone on here is a civil servant. Don’t know how you twisted that quote around but read again although context can be cumbersome on these blogs. Whether you agree with it or not, the government is not limited by economics or a free market because it can tax us and there is little we can do about it other than try to vote candidates in or out of office. IF and its a big IF the plans collapse, it will hurt everyone in one way or another. I find it odd that with all of the “experts” on here that those in Trenton are keeping this a big secret from the civil servants. Perhaps the civil servants don’t read blogs pertaining to the pensions.
Posted by muni-man on February 2, 2012 at 7:38 pm
Employment stats brought to you by your gooberment, in this case the US Treasury: http://www.usdebtclock.org/
Fed – 4.3M; State/Local – 15.5M; Total Gooberment – 19.8M; Total Workforce – 140.9M. less gooberment = 121.1M private sector/19.8M gooberment = 6.11-to-1.
Gotta adjust this downward a little for the permanently unemployable, but it’s still close to 6-to-1.
And TL is right – the legislative benefactors of the publics in the past will switch sides in a heartbeat when they realize the private sector will vote their ever-lovin’ asses out of office when they’ve become pissed off enough.
Posted by MJ on February 3, 2012 at 12:41 am
MM–In one sentence you ridicule the government for wanting us sheeple to believe certain things. In the next you are quoting employment stats from what you term a government site. Is that what we are supposed to believe? Why should I believe that? Of all of those private sector workers how many do you think are minimum wage earners or earned income tax workers or public assistance recipients who must work so many hours a week to receive their benefits. Please. Let me re-phrase—there are more people sucking out of the system in one way or another than there are private sector workers paying for it all.
Doesn’t look like anyone politically promising is coming down the road who would
be able to take on the pensions or the welfare state so I doubt anything will be changing anytime soon.
Posted by ANTHONY F. MISKOWSKI on February 2, 2012 at 1:05 pm
John: Thanks for the reply on the Fitch Report……. I have ben making public comment at the State Investment Council Meetings related to the Investment Return (IR) Assumption. There is universal agreement that 8.25% is too high even though that the last two year produced 13% and 18.03%. The average five year annualized is at 5.2%. Out of 128 public pension funds 17 set the IR at 8.25% and 12 at 8.5%. The actuaries for PERS and TPAF agree that the NJ IR is too high and at the last SIC Chair Grady had reccomended that it be set at 7.5%.
The question related to your current post and computations is how does lowering the IR affect your underlying premise concerning funding flaws?
Tony Miskowski
Secretary
CWA Local 1033
Posted by burypensions on February 2, 2012 at 1:21 pm
Tony,
A lowering of the investment return assumption in the valuation has one and only one effect. It will raise your official contribution amount. If you run all your numbers using 8.25% you come up with a required contribution of maybe $3.5 billion. If you plug 7.5% in as the interest rate that number goes up to maybe $4 billion.
However, whatever number comes out of the computer is meaningless if a state like NJ can come back and say we’re only going to put in 1/7th of it. That makes arguing about these arcane actuarial points kind of silly. What if the state agrees to go with an interest assumption of 7.5% but they change the law to define their required contribution as being only 1/8th of the calculated ARC instead of 1/7th?
And as to those supposed gains, I saw for 2011 they lost about 17% on stock (of which more than half the fund was invested in) but came up with a net investment gain because they made high double-digit gains in bonds, real estate, and hedge funds. I would seriously look at the detail and see how they can get these massive returns especially when there is a lot of wiggle room in how some of those real estate or hedge funds assets could be valued.
Posted by Javagold on February 2, 2012 at 1:46 pm
Tony, the last 5 years are ONLY 5.2% (and thats with the Federal Reserve manipulating the markets the past 3 years)…….so why do you allow them to fool you suckers with 8.5%…..do you think by keeping your heads in sand will make the problem just go away or do you think the public employee mob can still bully the taxpayers……..time to wake up and quickly, its GAME OVER !
Posted by dontbuyit on February 3, 2012 at 1:10 am
You bean counters and public employee bashers can keep whining and complaining but you can dream on.
What do you envision…..OK, let’s say the pension fund runs out of money. So then what happens….thousands of pensioners are dumped back into the workforce (some who have been retired/out of work for 20 or more years) where there are no jobs. Then they can’t pay for their homes, have no buying power, etc. causing more default, bank failures, hit to the economy, inflation and on and on. What….they go on welfare then?? Great idea…that won’t affect taxes!
Worse case is that the pensions will have to be paid out of the general fund with taxes going up to cover it. You can all stamp your feet blah blah blah and say the taxpayers won’t stand for it…..right…like they didn’t stand for the unemployment tax, welfare tax, disability etc.
You won’t like it but you’ll have no choice (well, except to try not to pay but then have your wages garnished,etc….also, kind of hard not to pay it when your employer will have to take it out automatically before you get it.)
Posted by Tough Love on February 3, 2012 at 1:17 am
Re your 2-nd paragraph…
It’s a zero-sum game. Every dollar taken away from Civil Servant (to spend less) is a tax savings to taxpayers (to spend more).
Seem quite fair and NECESSARY to me !
And paygo will never happen. As I said earlier, long before that happens, the politicians will switch sides … then you’re dead meat.
Suggestion …. save save save (outside your pension). You’re gonna need it when your pension goes belly-up.
Posted by dontbuyit on February 3, 2012 at 7:42 am
“Every dollar taken away from Civil Servant (to spend less) is a tax savings to taxpayers (to spend more).”
You’re not getting the point….I’ll use smaller words…..those dollars you think will be saved and go to taxpayers will just go to welfare, unemployment, etc. to cover the burden created when, in your wetdream, the system fails and all pensioners are dumped out into nowhereland. You think you and your pals will see a dime of that money….tee hee hee….Let me guess…you also believe that the 2% cap means that your property taxes will be going down and that our chubby Gov. is looking out for you…HAH!!!
Posted by Tough Love on February 3, 2012 at 11:44 am
Let’s put it this way …
Given your obvious arrogance for those (the Private Sector taxpayers) who pay your way, I couldn’t care less if I save a dime as long as the arrogant ones (such as yourself) lose their pension & benefits.
We’ll see ….. at 30-40% funded (under proper accounting), you lose.
Posted by Javagold on February 3, 2012 at 12:35 pm
i am sure many others feel the same way as Tough Love…… arrogant greedy public pigs need to be taklen down many pegs and if i dont save a dime so be it
Posted by MJ on February 3, 2012 at 5:05 pm
TL, no one is going to lose anything. At best there will modest reforms that extend the plans longer. Most reforms now are for new hires and the other money is long gone. There just isn’t any way around it. You seem like you are good with spitting out financial information about the pensions, why don’t you use your knowledge to educate the public servants in the middle who may have to pay for most of the current or future reforms.
Posted by speedwell on February 8, 2012 at 4:53 pm
The answer is staring us all in the face …Once we leave the state we are finished with worrying about the taxes to pay for the pensions …but the people who rely on the pensions will forever be worrying about when will the checks stop coming and as sure as the sun sets they will someday .
Posted by dontbuyit on February 3, 2012 at 4:38 pm
The jealously and envy of both of you is very amusing. As is your naivete at thinking that any politician would also screw himself (or many of his pals) on the pension payrolls. For that reason alone the plan won’t fail. You think guys like Joe DiVincenzo (and there are many others like him) would let legislation go through ending his pensions (he made sure he gets 2 of them!)???? If so, you are truly gullible & hopeless.
Oh…..and by the way, I’ve heard that Christie knows that a lot of the legislation regarding pension reform he pushed will fail in the long run. His idea was to get as much as possible from public workers into the till before a court decision is rendered. At that point, there will probably be an agreement reached where the State keeps what it got during the time before outcome with no requirement to pay it back but reverse most of the reforms. The same will go for COLA, with it being reinstated but not retroactively and that money saved will remain with the State. Gee…..I wish I could pull that with the IRS and my mortgage co. but I can’t get away with such FRAUD as I’m not the very corrupt Gov. of this very corrupt State.
Posted by Tough Love on February 3, 2012 at 5:07 pm
Let’s see now …
The NJ Plans are 30-40% funded now (under accurate accounting), and with the 1/7, 2/7 …7/7 grade-in of the fully $3.5 billion annual required contribution … meaning by the time (in 7 years) we reach full funding (as if that will ever happen anyway) “we” will be an ADDITIONAL $15 Billion in the hole.
You know who the “we” is in that sentence ….. YOUR PLAN. You see, you’ve been screwed over by BOTH your Unions and the politicians all too happy to accept campaign contributions and election support in exchange for pension promises the they knew cannot and will not be met.
I’ve got a bridge to sell if you really think your pension will be paid in full.
I suggest you start saving (like the rest of us taxpayers) pronto.
Posted by MJ on February 3, 2012 at 4:59 pm
dontbuyit–I think you hit the nail on the head. These corrupt politicians are in it for the long haul and don’t forget that their relatives, spouses and pals are in the public sector too and are expecting their pensions and benefits and that is the reason the system will not fail. There will be small and insignificant reforms along the way such as employees paying a little more in, suspension of colas, etc. which will give the plan life for a bit longer. TL herself?? states that there is at least 10 more years until its pay as you go but more small reforms might extend that to 20 years.
Its true that if you cut all of these public employees off from pensions and life long health benefits through significant reform, most likely many will end up on several government programs and the cycle continues……….taxes go up, people complain, no reform, same career politicians elected,……..you get the picture. No sense being angry, just plan ahead and make sure you are long gone before the sh#t hits the fan and take your money with you.
Posted by Tough Love on February 3, 2012 at 5:12 pm
Quoting …”…just plan ahead and make sure you are long gone before the sh#t hits the fan …”
That’s what the retired workers in Central falls RI thought too. They’ve now areed to roughly a 50% pension haircut..
You see …. it’s the math that ultimately governs, not the politicians, and not the Courts …… and pension-wise, the math says Civil Servants dead meat.
Posted by Javagold on February 3, 2012 at 6:04 pm
i understand the desperation, it must be a bad feeling not knowing what to do……but repeating the same lies over again isnt going to save the pensions and/or bullying people and calling them jealous isnt going to work any more either
PS Jealous of what ??????????…….LOL
Posted by MJ on February 3, 2012 at 6:12 pm
Give it a rest TL. Again, the reforms in RI were modest at best and it was a very, very small town that was hit with the reforms and after so many years its back to business as usual just as the 1.5 % health care payment from the public employees will sunset in about 3 years. Only SOME of the retirees for certain unions took a 50% cut (most took very modest haircuts) and it is only temporary. Way different situation. Christie will be long gone–not that he did anything of significance–and it will be business as usual here as well . Read again very slowly when I stated that along the way there most likely will be some more modest reforms just to keep the plans going. I am not debating the math all I am saying is that I don’t think there will be a collapse anywhere in the near or distant future. Whether you like it or not, the collapse that you hope for is not coming anytime soon so put on your big girl?? panties and plan ahead and use your anger and resentment for productive purposes if you can.
Posted by Tough Love on February 3, 2012 at 6:34 pm
In case you are unaware, the Mayor of Providence (RI Capital) is now calling for similar cuts from it’s retirees.
And a 50% reduction to someone already retired is not small, it’s huge and very problematic for that person. This is a perfect example of why we must stop promising these ridiculously excessive pensions that will not be honored. If the actives know NOW that haicuts are coming, at least they will have some time to plan accordingly.
Posted by muni-man on February 3, 2012 at 6:53 pm
‘Providence’ will soon to be coming to theatres in Illinois, Detroit, a slew of Ca. cities et.al. Gonna be a fairly common story du jour in the future – which public entity gets it’s cocoon shredded next.
Posted by MJ on February 3, 2012 at 7:16 pm
Muni–you got it right. It is all “theater” and quite entertaining at that. Nothing happening anytime soon but it will be fun to watch and see how it all plays out although I suspect that the pension plans will be around for quite some time. These politicians have become masters at playing the game and will do whatever it takes to maintain their lifestyles. We can all just wait and see.
Posted by Tough Love on February 4, 2012 at 4:12 pm
FYI Providence RI Mayor Angel Taveras urged Providence’s retirees to learn a lesson from what happened in Central Falls, warning he would find a way to reduce the cost of their pension benefits “one way or another.”
Posted by MJ on February 3, 2012 at 7:00 pm
TL you read way too much into these rag articles on the internet. I read the article that you are referring to and what I gleaned was that there will be “major tax increases” unless there are concessions from the unions. So if the unions “agree” to some minor concession guess who gets to pick up the rest? Seems like they want Brown Univ. and other tax exempt entities to kick in more also. AGAIN I will predict that there will be some MODEST reforms on the part of the unions and the rest of the burden will be tax increases of one sort or another.
Same story, different town.
Posted by muni-man on February 3, 2012 at 7:22 pm
What you didn’t read is that the city council president has said raising existing taxes is off the table (3rd section in). So if they can’t come up with some new source like Brown Univ., hospitals etc. to gouge, then the fun begins. Publics are starting to run out of gougees, all over the nation. A new phenomenon has arisen – REALITY, and that’s a serious problem that publics definitely don’t like to confront.
http://www.wpri.com/dpp/news/local_news/providence/wpri-wpri-providence-mayor-angel-taveras-budget-crisis-nek
Posted by MJ on February 3, 2012 at 9:35 pm
TL what you may have missed is that the judge ruled for the retirees. An appeal can take some time. Supplemental tax increases are off the table only if the retirees do not take the cuts and if Brown Univ. and others do not pony up is what I read into it.
AGAIN Some small concession will be negotiated, Brown will pay something and pass the cost onto tuition and tax increases or fees disguised as tax increases will be implemented. Haven’t you learned that it doesn’t matter what a politician says but only what he does?? Silly…..
Posted by Tough Love on February 3, 2012 at 11:39 pm
MJ, you are so naive. Think “math”.
Posted by MJ on February 3, 2012 at 6:17 pm
Java, most of the retired public employees that I now are not feeling any desperation at all. In fact, most are living quite well, at least by appearances, and are rather content.
I will state again, if you and others on here have so much knowledge of some sort of impending pension melt down, why don’t you use your “expertise” to educate others in order to foster significant reform measures. Nobody can predict when or if any collapse will occur its all just smoke and mirrors.
Posted by Javagold on February 3, 2012 at 6:34 pm
MJ, appearances can be deceiving, as i am sure you are aware
you can believe it or not, i could care less…..its coming and nothing you can do about it, no matter how much you protest
Posted by dontbuyit on February 3, 2012 at 7:13 pm
Hahaha…..you sound like a Mayan believer nut.
Here is an article from over 5 years ago when the issue of going after pensions was argued….NJ’s OWN LEGAL COUNSEL stated:
“In enacting that law, the Legislature intended to establish a contractual right. The Federal and State Constitutions prohibit the impairment of the contract, and therefore promised retirement benefits cannot be altered.”
He went on to state that the modern view of public pensions is a “form of deferred compensation to which an employee has a contractual right.”
http://www.njpsa.org/pubs/article.cfm?aid=1008
So……while you won’t be able to pass Go and collect $200…..I (and others smart enough like me who years ago took lesser pay but the better benefits of a public employee career and now will enjoy such a wise move) will……I’ll put it towards my boat payment.
Posted by MJ on February 3, 2012 at 7:18 pm
Now now dontbuyit, you don’t have to be mean about it but enjoy you boat!
Posted by dontbuyit on February 4, 2012 at 1:18 am
Thanks MJ….If you’re a fellow public employee/retiree you’re welcome to join me. We can relax, drink & have some stogies while the private sector slugs sit traffic trudging to their lifeless jobs all the while lamenting their choice and repeating over and over “Those public workers will get theirs boy….just you wait and see….our hero Gov. Christie will make it so!!!”.
Posted by Tough Love on February 4, 2012 at 3:01 am
NJ and dontbuyit, Keep reassuring each other if that’s what make you feel better ….. but watch out for the “math”.
That’s what’s gonna bite ya.
Posted by Tough Love on February 3, 2012 at 7:35 pm
Do you think …”NJ’s OWN LEGAL COUNSEL” … who is himself a Participant in these same Plans is going to issue an opinion which might lead to the reduction in his OWN pension ?
Do I smell ..Conflict Of Interest ?
Posted by MJ on February 3, 2012 at 6:39 pm
Java, nobody can accurately predict when anything is coming, however, if I was a gambler I would say that the day of reckoning is so far off in the future that we will all be in a better place by then.
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Posted by My Lord on February 8, 2012 at 12:46 am
It amazes me how the 2-3 private workers who hate public workers and scream out their comments on here at every chance that taxpayers should not pay for public pensions because they are too generous.
The facts are that taxpayers of NJ have had about a 20 year holiday from paying into the public pension system. Christie did nothing the last two years other than extend the holiday another year and then legislate a large, partial holiday for another 7 years.
Instead of proposing a 10% income tax cut, he should be making arrear payments to the pension fund. Any other private employer that screwed their own employee pension fund like the State of NJ has for decades would be thrown in jail.
For what it is worth, I have an excel spreadsheet showing the pension fund value each june 30th (end of fiscal year) since 1998. How can I share it?
Posted by Javagold on February 8, 2012 at 1:33 am
you can flush it down the toilet and share it with your septic
Posted by Tough Love on February 8, 2012 at 1:50 am
While you are correct that NJ hasn’t put in the recommended ARC for many years, that is quite a separate issue from whether the Plans are “too generous”. In my opinion, whether they are “too generous” should be determined by a comparison of Public Vs Private Sector “Total Compensation” (cash pay + pensions + benefits), and Total Compensation should be very close in Public and Private sector comparable jobs (or jobs with reasonably similar risks if not exactly comparable).
Not withstanding competing studies of Public VS Private sector CASH PAY, most (including the US Gov’t BLS study) conclude that cash pay is very close for all but a few highly professional jobs (doctors, lawyers, certain IT professionals, etc.). With that as the backdrop, in order for Total Compensation to also be close, then pensions and benefits must ALSO be very close. But we both know that’s not even remotely true.
Right now, the Taxpayer paid-for share of the TYPICAL Public sector pension is 2-4 times (6 times for safety workers) greater in value at retirement than their Private sector counterparts and, while virtually ALL Public Sector workers get free or highly subsidized retiree healthcare, it is almost unheard of any longer in the private sector.
The conclusion is obvious ….. Public Sector “Total Compensation” far far exceeds that of comparable Private Sector workers. This is unnecessary to attract and retain a qualified workforce, is unsustainable, and is grossly unfair to taxpayers who are now responsible for all but the 10-20% of Total Plan costs funded by the employees (INCLUDING all of the investment earnings during their careers).
Sorry MY Lord …. the Plans ARE way too generous. And not surprisingly, funding is so difficult BECAUSE adequately funding a VERY VERY generous Plan is VERY VERY expensive.
Posted by burypensions on February 9, 2012 at 12:11 am
You can email the spreadsheet to batpension@yahoo.com and I’ll upload it.
Otherwise fax to (973)-783-4477
Posted by Tough Love on February 8, 2012 at 1:49 am
While you are correct that NJ hasn’t put in the recommended ARC for many years, that is quite a separate issue from whether the Plans are “too generous”. In my opinion, whether they are “too generous” should be determined by a comparison of Public Vs Private Sector “Total Compensation” (cash pay + pensions + benefits), and Total Compensation should be very close in Public and Private sector comparable jobs (or jobs with reasonably similar risks if not exactly comparable).
Not withstanding competing studies of Public VS Private sector CASH PAY, most (including the US Gov’t BLS study) conclude that cash pay is very close for all but a few highly professional jobs (doctors, lawyers, certain IT professionals, etc.). With that as the backdrop, in order for Total Compensation to also be close, then pensions and benefits must ALSO be very close. But we both know that’s not even remotely true.
Right now, the Taxpayer paid-for share of the TYPICAL Public sector pension is 2-4 times (6 times for safety workers) greater in value at retirement than their Private sector counterparts and, while virtually ALL Public Sector workers get free or highly subsidized retiree healthcare, it is almost unheard of any longer in the private sector.
The conclusion is obvious ….. Public Sector “Total Compensation” far far exceeds that of comparable Private Sector workers. This is unnecessary to attract and retain a qualified workforce, is unsustainable, and is grossly unfair to taxpayers who are now responsible for all but the 10-20% of Total Plan costs funded by the employees (INCLUDING all of the investment earnings during their careers).
Sorry MY Lord …. the Plans ARE way too generous. And not surprisingly, funding is so difficult BECAUSE adequately funding a VERY VERY generous Plan is VERY VERY expensive.
Posted by Javagold on February 8, 2012 at 1:54 am
http://www.youtube.com/watch_popup?v=KDYw7rg7aV8&vq=medium
Posted by Get Another Opinion GAO « Burypensions Blog on March 5, 2012 at 4:31 pm
[…] using bad rules, were deposited the fatal flaw in commutation functions for underfunded plans, which I tried to explain before, guarantees erosion of funded […]
Posted by If They Only Knew: Media Coverage of West Warwick Pension Bankruptcy « Burypensions Blog on May 9, 2012 at 1:24 pm
[…] liability numbers provided in the report, in large part due to the flaw in calculating liability values for underfunded plans, are grossly understated. Ignore the 26% funded ratio. The only useful aspect of liability […]
Posted by Three More Myths About Public-Sector Pension Plans | Burypensions Blog on October 25, 2013 at 1:15 pm
[…] Interest rate choice need not consider funded ratio: Explained in a prior blog but basically it is a flaw in actuarial theory that presupposes 100% funding and provides ever more […]
Posted by Lying About Asset Values | Burypensions Blog on September 1, 2014 at 12:25 am
[…] the value of their liabilities (with the worst funded plans lying the most) primarily because of flaws in actuarial methodology that mask true underfunding. In the case of New Jersey the official liability value is $132 […]
Posted by What the Penison Panel Failed To Say | Burypensions Blog on September 26, 2014 at 12:26 pm
[…] earnings when it is assuming 7.9% worsens their shortfall. It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public […]
Posted by John Bury: 4 Things The New Jersey Pension Panel Failed To Say | Pension360 on September 29, 2014 at 6:24 pm
[…] in trust earnings when it is assuming 7.9% worsens their shortfall. It’s primarily because of a flaw in basic actuarial math which is not being adjusted for since getting it right is not what public […]
Posted by How Did State/Local Plans Become Underfunded? | Burypensions Blog on January 6, 2015 at 1:10 pm
[…] assumptions are not being realized means they are faulty. The funded status of a plan is a critical component in the selection of the investment earnings rate to be used and the actuarial community has chosen […]
Posted by Cost of COLA Return | Burypensions Blog on December 26, 2015 at 11:15 am
[…] rates that average about 5.5%. Considering the severely underfunded status of the plans (and the interest rate adjustment necessary to account for that status) we can bump that up by another 50% to about $51 […]
Posted by Busting the Riskless-Rate Myth | Burypensions Blog on December 29, 2015 at 12:37 pm
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Posted by PEPTA Redux (2) Public Plan Actuary Explains Valuing Liabilities | Burypensions Blog on March 10, 2016 at 2:16 pm
[…] explain the flaw in a prior blog which basically justifies using a lower interest rate for underfunded plans and lays out this […]
Posted by Bucking ASOPs | Burypensions Blog on April 20, 2016 at 12:32 pm
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Posted by Pew Ranks | Burypensions Blog on May 3, 2017 at 8:13 am
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Posted by U.S. Pension Crisis | Burypensions Blog on June 18, 2017 at 1:56 pm
[…] I missed this 2013 book when it came out but my Amazon order came yesterday and here are some excerpts starting with a seminal flaw in the valuation of underfunded plans that I also note: […]
Posted by omniresearch on June 18, 2017 at 2:21 pm
But wouldn’t the increased contribution for the unfunded liability , if it earns 8% get you the payout you need for 100% funding ?
BTW the author of the book is a colleague of mine , also created the Lehman Agg index , now the Barclays Agg benchmark. And we are working with pension and union plans to show them how they can be better funded without taking excessive risks . I don’ want to make a blatant plug .
Posted by Muoio the Same for NJ Pensions | Burypensions Blog on March 17, 2018 at 8:58 pm
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Posted by Actuary Watching NJ Politicians Like a Hawk | Burypensions Blog on April 13, 2018 at 7:13 pm
[…] party but Assemblyman (and pension actuary) Ned Thomson took a shot…with a bullseye on the interaction between a plan’s funded ratio and funding interest rate: […]
Posted by Actuaries Respond to Congress on Multiemployer Plans | Burypensions Blog on June 8, 2018 at 9:25 pm
[…] mention of the funded status of the plan which, per my explanation here, is an absolutely critical factor that the actuarial community has chosen, for a host of reasons […]
Posted by Who Doomed Your Pension | Burypensions Blog on July 20, 2018 at 6:31 pm
[…] Even these days the 4% interest assumption (going up to 5% for the 6/30/17 CAFR) remains grossly inadequate for a plan so severely underfunded (concept explained here). […]
Posted by Rauh Testimony (1) Riskless Rates | Burypensions Blog on August 1, 2018 at 10:25 am
[…] in public plans are assured of getting all their benefits (they’re not). The reason, as I went into previously, is that a plan like New Jersey’s, which is about 30% funded, will only get earnings on 30% of […]
Posted by HSI (2): Overfunding Danger | Burypensions Blog on September 24, 2018 at 6:19 pm
[…] Current funded ratios need to be a critical component in determining the interest rate for valuing liabilities (as explained here). […]
Posted by NJ Pension Irrelevant Investment Returns | Burypensions Blog on March 28, 2019 at 9:06 am
[…] Until we arrive at a pay-as-you-go system New Jersey politicians have no practical constraint on the level of contributions they deem appropriate to budget for in any year as they are free to ignore the suggestions of the actuaries (Cheiron now) which, even if the fund were earning 7.5%, would still increase the real unfunded liabilities. […]
Posted by Cost of a New Jersey Public Pension (2) | Burypensions Blog on September 13, 2020 at 5:37 pm
[…] interest assumption is aspirational and only being used to keep contributions low. As explained here a plan as badly funded as New Jersey’s should be using a much lower interest assumption to […]
Posted by Rosy NJ Pension Lies | Burypensions Blog on May 24, 2021 at 10:28 am
[…] Pension Funding Flaw: If you make a 20% return on $250 billion that comes to $50 billion. If you only have $80 billion then a 20% return would give you $16 billion which means $34 billion that you have lost from not being fully funded. […]