“No assurances can be given as to the level of the State’s pension contributions in future fiscal years”

In one of the lamer political rationalizations for lying:

Christie spokesman Michael Drewniak provided The Star-Ledger with several examples where identical warnings were included in previous bond prospectuses dating back to at least 2009, calling it a standard disclosure.

“The language referred to is standard disclosure language that is identical to bond offerings disclosures going back to at least 2009 and the Corzine administration,” Drewniak said. “It is because we cannot tie the hands of, or commit future legislatures or governors’ actions that we are obligated to include such language.”

So no assurances could have been made in 2009 but, after the 2011 law passed, shouldn’t this language have changed?  How much of this prospectus is boilerplate?  Has anyone checked?  Is there still language in there from the Cahill administration about not needing an income tax?

What other tidbits are in the 16 pages of the prospectus devoted to Funding Pension Plans and what do they really mean?

As is discussed below, the actual amounts that the State contributes to the Pension plans each Fiscal Year are subject to annual appropriation by the State Legislature and can be and, over the last several years, have been less than the actuarially recommended contribution rates. (I-50).

Real World Translation: We can do whatever we want.

Calculations of the actuarial accrued liability reflect legislation in effect at the time calculations are made.  Legislation enacted after such calculation could significantly increase or decrease the actuarial accrued liability reflected in any such calculations. (I-54)

Real World Translation: Benefits can be cut…..and significantly.

The 2011 Pension and Health Benefit Reform Legislation contains a provision stating that members of the Pension Plans now have a contractual right to the annual required contribution made by the State and local participating employers and failure by the State and local employers to make annual required contributions is deemed an impairment of the contractual right of each member.  This language may limit the State’s ability to reduce or limit pension contributions in response to future budgetary constraints.

Real World Translation: Note the word ‘may’.  It’s New Jersey, we don’t heed no stinkin’ contracts.

Although the accumulation of assets in the Pension Plans does not jeopardize the payment of pension benefits in the short term, the long-term impact of continuation of a funding policy that allows the State to contribute less than the actuarially recommended contributions could impact, at some point, the Pension Plans’ ability to meet their obligations absent significant additional contributions by the State, increased investment returns or actions resulting in changes to liabilities of the Pension Plans.  Future increased contributions by the State in future Fiscal Years, depending on the magnitude, would likely create a significant burden on all aspects of the State’s finances.  No assurances can be given as to the level of the State’s pension contributions in future fiscal years. (I-62)

Real World Translation: No assurances can be given as to the level of the State’s pension contributions in future fiscal years.

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* Legal as defined by the State Legislature which if it passed a law raising the interest rate to 600% and using a plague component in the mortality table thus developing a contribution of $7 and then defined the ‘required contribution’ as one-seventh of this calculation they could put in $1 and still be law-abiding.

“No assurances can be given as to the level of the State’s pension contributions in future fiscal years,” the prospectus reads.

Yet when pension ‘reform’ was passed in 2011 assurances were made and are still being made.

It was further reported today that:

Christie spokesman Colin Reed downplayed the importance of the disclosure, describing it as a legally-cautious approach and not a departure from the administration’s public promises.

“This administration is committed to making the full required payments into the pension system, and our budget priorities reflect that fact,” Reed said. “All risks, even remote risks, have to be disclosed to investors under federal securities laws.”

The 2011 law even includes this paragraph:

One section of the bill provides that each member of the TPAF, JRS, Prison Officers’ Pension Fund, PERS, Consolidated Police and Firemen’s Pension Fund, PFRS, and SPRS will have a contractual right to the annual required contribution made by the employer or by any other public entity.  The contractual right to the annual required contribution means that the employer or other public entity must make the annual required contribution on a timely basis to help ensure that the retirement system is securely funded and that the retirement benefits to which the members are entitled by statute and in consideration for their public service and in compensation for their work will be paid upon retirement.  The failure of the State or any other public employer to make the annually required contribution will be deemed to be an impairment of the contractual right of each employee.  The Superior Court, Law Division will have jurisdiction over any action brought by a member of any system or fund or any board of trustees to enforce the contractual right set forth in this bill.  The State and other public employers will submit to the jurisdiction of the Superior Court, Law Division and will not assert sovereign immunity in such an action.  If a member or board prevails in litigation to enforce the contractual right set forth in this bill, the court may award that party their reasonable attorney’s fees.  That section also provides that the rights reserved to the State in current law to alter, modify, or amend such retirement systems and funds, or to create in any member a right in the corpus or management of a retirement system or pension fund, cannot diminish the contractual right of employees established by this bill.

And if it’s video evidence you need:

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It’s in the law.  Is the state of New Jersey telling bondholders and the SEC, who have the power to cut the credit card and send you to jail respectively, that they will not follow the law if necessary?

Yes, when it comes to keeping their gravy trains fueled the majority of New Jersey politicians will cut any benefit (other than their own), rewrite (i.e. break) any law, and shun any moral obligation.  Public workers have that assurance.

Reversing a prior position, the Pension Benefit Guaranty Corporation announced today that it will pay pension benefits for more than 800 former employees of the Hospital Center at Orange, which provided primary and emergency care in Orange Township, N.J. before closing in 2004.

The Hospital’s pension plan was originally covered by ERISA and protected by PBGC. However, in 2003, after the hospital became affiliated with Cathedral Healthcare System Inc., the Internal Revenue Service determined that the hospital’s pension plan had become a church plan, which removed it from PBGC’s protection. Soon after that, the hospital began winding down its operations and laying off employees.

Over the past several years, at the request of the Pension Rights Center, PBGC worked with the hospital’s former staff and the IRS to revisit that designation. IRS recently set the designation aside and PBGC can now cover the pensions. The plan is within months of running out of money, so if PBGC had not stepped up benefit payments would have stopped.

“Why did PBGC push to take on this substantial financial responsibility?” said PBGC Director Josh Gotbaum. “The answer is simple. Our job is to provide a safety net for pensions. In this case, we realized we could restore the safety net — so we did.”

In a letter posted on May 10th, the Pension Rights Center praised PBGC for pushing to protect the hospital’s retirees. “The PBGC’s actions helped rectify an injustice that the law never intended, and illustrate your agency’s strong commitment to the protection of pension plans and participants.”

According to PBGC estimates, as of Jan. 1, 2009 (the plan termination date), the plan had $11 million in assets to pay $41 million in benefits. The agency expects to cover the entire $30 million shortfall and expects to pay the benefits owed under the plan.

Retirees will continue to get benefits without interruption, and future retirees can apply for benefits as soon as they are eligible.

What were they thinking?

Church plans are not covered by the PBGC for a very good reason: ERISA funding rules don’t apply to them either as part of the church plan exemption*.  Fifteen years ago (according to public records as compiled by Larkspur) this plan had $26 million in assets and was paying out $1.5 million annually. PBGC premiums were modest back then as most plans terminated routinely without need for the PBGC backstop.

When the Hospital Center of Orange moved to church plan status they were theoretically on their own and it appears they stopped contributing but kept promising. $26 million dwindled to $11 in 2009 and $0 by the end of this year. Who is responsible for the contributions that would have been required had the plan not had the church plan exemption for the last decade?

The PBGC may see itself as having a moral obligation to protect all pensions but the money they are using to pay for past promises cavalierly made without adequate oversight is coming from higher premiums that are discouraging the establishment of defined benefit plans for future retirees**.  Who are they to pray to for their pensions?

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* Though I do some church plans the exemption from ERISA is puzzling as if the IRS felt religious organizations didn’t need the discipline of funding rules to keep promises they make.

** I have not set up a new PBGC covered Defined Benefit Plan in about 10 years though I have taken over a few – usually freezing accruals if they weren’t already frozen.  PBGC premiums for underfunded plans can be as much as the actual cost of the benefit accrued for a participant these days as the PBGC is desperate to exploit what they believe to be a captive revenue source.  However all plans are not covered by the PBGC, professional service companies with less then 25-participants being the main exemption though they do need to follow IRS funding rules, and options available under Defined Contribution plans make it a real possibility that the only plans left to pay PBGC premiums are those that almost certainly will need the protection.

“I just want to say that it has always been my observation over the years that probably the most dangerous people to effective government are known as commentators. Commentators are those people that sit back and take pot shots and cherry pick and do things to make governmental officials look bad. I didn’t really realize that until I got into government because I in fact was in the private sector before that but Charlotte, on behalf of all government officials that are not just commentators but rather doers, I thank you for being the type of government official we would all like to be, strive to be, and in our wildest dreams will probably never accomplish.  Thank you again Charlotte……L-A C-O-R-T-E”

I’m not not making this up.  That’s what he really said.  See:

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Truly the deal Charlotte DeFilippo worked out for herself (no-show job, full pension, full health benefits, 35 vacation days translatable into salary, 15 sick days, 3 personal days, no-criticism-allowed contract clause) would be the envy of any ‘public servant’ but note Mr. LaCorte‘s attitude toward those who would begrudge having their tax money spent to subsidize this dream-job.

Nicer things have been said about Jews at bund rallies than what Mr. LaCorte voiced about citizens exercising free speech rights.  If this view is really prevalent among the public-servant-elite then how soon will it be before those make-work construction projects to repay political donors start being gas chambers?

However, at 2:20 pm I was tipped off and  was able to crash the party with my camera.

The ring-kissing went on (pay particular notice to what James L-a-c-o-r-t-e had to say):

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Though real members of the public did get to speak:
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Today’s events can’t be done justice without a full unedited video of the entire proceeding interrupted only by county counsel saying I couldn’t film while the meeting was not in open session (if there are any First Amendment media attorneys who think otherwise, please weigh in).  For context here is my rough timeline:

2:20: Found out the UCIA was going to have this emergency meeting
3:00 Arrived in the Freeholder meeting room
3:05 Emergency meeting called to order
3:10 UCIA board goes into executive session to discuss personnel matters
3:15 First cop arrives
3:30 Second cop arrives
3:35 Meeting resumes
3:55 Meeting ends
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In my experience it does not and I just happen to have a perfect example which I will present one week from today to the New Jersey’s Local Finance Board in regard to an application before them:

Union County Improvement Authority (UCIA); Union, NJ

Issuance of up to $20 million in lease revenue bonds for the

“Union County College Cranford Facility Project”

Thank you for allowing me to comment on this application.  I oppose this project and ask that you deny approval for two reasons:

1)    Having gone through all 210 pages of this application I found no detail on what this project is going to build or any rationale or dire need for this new building, whatever it might be, to justify further burdening the taxpayers of one of the highest-taxed counties in the nation with one of the largest debt burdens in the state.

2)    I have attended almost every Union County freeholder meeting over the last five years, recording many of them, and at no time has anyone asked for this or any of the other multi-million-dollar building projects that either the county or the UCIA has embarked upon.  Of the few members of the public (including a recurring contingent from Summit) the call has consistently been for lower taxes.  My theory, as supported by the attached exhibits, is that this is simply a make-work project designed to generate fees for county vendors, including the law firm of DeCotiis, Fitzpatrick & Cole, LLP, in exchange for contributions to the Union County Democratic Committee or to Union County freeholder campaigns.  Charlotte DeFilippo, the executive director of the UCIA is also the head of the Union County Democratic Committee.

DeCotiis

DeCotiis, Fitzpatrick, & Cole, LLP (formerly DeCotiis, Fitzpatrick, Cole & Wisler) have been the general counsel to the UCIA since at least 2004 (billing records only go back that far) for which they have been paid $10 million in fees (A).

Recently DeCotiis has also been counsel to EnCap, Xanadu, and the NJ Turnpike Authority.  Those lucrative assignments have all ended, some very badly.  To maintain their revenues from the UCIA and Union County in general starting in 2009 some lawyers at the DeCotiis firm  donated a total of $30,000 annually, split among 18 to 21 attorneys, none of whom live in Union County, in equal denominations to the freeholder candidates in those years (B).  In 2011 there was $60,000 donated split between the Primary and General elections though Jonathan L. Williams, Esq. (C) the principal liaison to the UCIA was not among the DeCotiis donors.

I brought this up as part of an April, 2012 presentation on the county budget and DeCotiis attorneys have not made these contributions subsequently according to the NJ Elec website.  They have made smaller total donations, $1,500 divided up by attorney to the Clark Democratic Committee as well as to two Cumberland County freeholder candidates though leaving out the DeCotiis employer affiliation in their NJ Elec filing (D).

The last political contribution ever made by disgraced former name partner Eric Wisler was $1,428.58 on October 29, 2009 to the Mirabella Scanlon & Jalloh Victory 2009 campaign though he reported his name as E. Wisler (B22).  Even Mr. Wisler, the driving force behind the EnCap debacle and money-man to convicted felon Wayne Bryant, had his qualms about this pay-to-play scheme.

UCIA Projects

The UCIA does build things but the question has to be whether that building is for an essential need and, if so, is the price for that construction fair considering the percentage that DeCotiis, Birdsall, and other county vendors/campaign donors command.  Based on billing records the projects are almost exclusive to Plainfield (though none recently), Linden, and the County.  None of the other municipalities uses the UCIA.  Kenilworth considered using the UCIA to build a new police station but found that the cost of going through the UCIA would be prohibitive and wound up purchasing an existing adjoining property as an annex.

Then there are the questionable projects and legal entanglements bred of inefficiency and incompetence that have generated substantial fees for DeCotiis as listed below through 4/3/13 and summarized on the attached exhibits

• Verge Properties Urban Renewal -$824,773.26 (E)
• Linden South Wood Avenue: $282,414.73 (F)
• Linden Morningstar: $570,854.40 (G)
• Travisano vs. UC Freeholders: $92,049.04 (H)
• Oakwood Apartments: $176,524.99 (I)
• ISP/DuPont Development: $578,835.15 (J)
• Berkeley Aquatic Club: $100,625.27 (K)
• Renewable Energy: $883,226.63 (L)
• Tremley Point: $344,039.83 (M)
• Golf Course Project: $294,082.13 (N)

Charlotte DeFilippo

Director of the Union County Improvement Authority and concurrently the  Chairman of the Union County Democratic Committee whose employment contract with the UCIA calls for:

Term: 5 years

Salary: $160,866.32

Sick Days: 15

Vacation Days: 35

Work from home

All while having two people doing some of her work and a law firm getting over a million dollars a year in fees doing most of the rest.

And the most outrageous part of her employment contract (from page 6 of 8):

“EMPLOYEE shall not be discharged, disciplined, reprimanded, reduced in status, rank, or compensation, or deprived of any professional or employment advantage, or given any adverse evaluation of her performance without just cause, including EMPLOYEE’s malfeasance, which shall have first been determined by a court of competent jurisdiction.”

Charlotte DeFilippo is working in cahoots with the DeCotiis law firm to enrich each other with any benefit to county taxpayers secondary to the main purpose of finding projects that can be bonded for – be it a clubhouse/banquet center, a courthouse, or multiple ice-rinks – regardless of the need for these projects.  Their need to be millionaires, or possibly multi-millionaires, supersedes the need of Union County taxpayers to stay solvent.

Oversight – UCIA Board of Commissioners

Anthony Scutari, Chairman (Linden): County Employee $106,032

Carolyn Vollero, Vice-Chairman (Cranford):  former County Employee

Joseph Miskiewicz, Treasurer (Hillside): County Employee, $51,112

John Salerno, Secretary (Cranford): County Employee, $89,540

Cheron Rountree, Commissioner (Union): County Employee, $89,940

Walter Boright, Commissioner (Westfield): Retired Public Employee with multiple pensions

Linda L. Hines, Commissioner (Plainfield): Plainfield Municipal Utilities Authority Employee, $37,600

Sebastian D’Elia, Commissioner (Fanwood): County Employee, $111,420

Samuel McGhee, Commissioner (Hillside): Executive Director of the Joint Meeting of Essex and Union Counties and former mayor of Hillside

HELP!

DeCotiis is killing us.  Berkeley Heights is looking to secede.  Summit is considering escrowing county taxes. Linden is paying for all their UCIA projects through laying off police personnel.  We need lower taxes and that can’t happen as long as DeCotiis is allowed to run the county.  Please audit the books.  The current auditors (Suplee, Clooney & Company) have been looking over the county books since at least the year 2000 and though they have brought up issues (which are consistently ignored) what they have missed is startling.  I am a pension actuary with some experience in government accounting and a good working knowledge of financial reporting.  Reports to taxpayers, the SEC, and the state have been deceptive with at least one instance of fraud.

• OPEB valuations in the county audit claim a trust fund amount that does not exist (O)
• A report on covering the cost of paying 100% of lifetime health benefits for 600 current employees through forgoing raises was deceptive in assuming no decrements in employee population over 25 years (P)
• The UCUA 2011 bond refunding that was sold using a deceptive report that ignored payments during the extended bond repayment period (Q)
• Brown & Brown provided a deceptive cost comparison of SHBP to private plans that pay commissions to them (R)
• Misappropriation of Open Space trust fund money (S)

Finally, Union County is subsidizing the UCIA with at least $600,000 budgeted in 2013 (T)

Governor Christie makes $175,000 in salary so in 2010 he imposed that as a prospective cap on superintendent salaries.

In an article today, a purported blowback example is provided in the retirement of Judith Wilson who has 35 years of service with a salary of about $225,000 and is retiring on a pension of $144,000 at age 56 rather than swallow a pay cut.  What that writer is missing…..

If Ms. Wilson had stayed another 10 years and gotten heretofore routine salary increases to get her average salary to $300,000 her pension would have been $250,000 instead of $144,000, an increase in value of about $1 million and those higher salaries while working would more than make up for the forgone pension payments over the 10 year period.

Defined benefit plans are severely backloaded.  Someone at or near retirement age could easily accrue 50% of their salary in the value of pension increases while someone 30 years from retirement might be getting an accrual value, subject to vesting, of 5%.  As outrageous as it may seem to have a government employee getting a pension valued at $2 million, how would $3 million strike you?

Does anyone teach math (or logic) around here?

Last week New Jersey announced what localities would need to pay into PERS and PFRS for 2014 per a DLGS email blast:

On April 15, 2013, the Christie Administration issued a press release regarding Fiscal Year 2014 pension bills for local governments across the state.  These bills, which provide the formal actuarial assessment of  pension costs to each local government with employees in the Public Employee Retirement System (PERS) and the Police and Firemen’s Retirement System (PFRS), are accompanied by actuarial projections that demonstrate that pension costs are $540 million – or 25 percent – lower for the coming fiscal year than they would have been without pension reform.  More information is available to view online at http://www.state.nj.us/treasury/pensions/2014-employer-billing.shtml.

A comprehensive spreadsheet comparing the Fiscal Year 2014 pension contribution amounts against last year’s actual bills and against the pre-reform baseline of projected pension costs for every local government unit in New Jersey can also be found at http://www.state.nj.us/treasury/pensions/pdf/financial/2014-pers-pfrs-ch78-compare.pdf.

That’s right, they reran the valuations with cost-of-living-adjustments (COLAs) on benefits reinserted so they could brag about the 25% savings in contributions (or possibly warn of the added cost if COLAs get reinstated retroactively by the courts) but they can’t change a 7.9 to a 3.85 and wait the 20 seconds.

Appendix A – Using Moody’s pension adjustments to derive Moody’s adjusted net pension liability. The steps we take to adjust reported pension liabilities are:
» Allocating cost-sharing plan liabilities. We will allocate to state and rated local governments their proportionate shares of CSP liabilities based on the share of total plan contributions represented by each participating government’s reported contribution. In cases where there is a known actuarially required contribution (ARC) that is greater than the actual contribution, the entity’s proportional share will be calculated using the employer ARC relative to the plan ARC.
» Discounting accrued liabilities using a market discount rate. We will use Citibank’s Pension Liability Index (“Index”) and a common duration of 13 years to adjust each plan’s reported actuarial accrued liabilities (AAL). The Index is composed of high credit quality (Aa rated or higher) taxable bonds and is duration-weighted by Citibank for purposes of creating a discount rate for a typical pension plan in the private sector. The reported AAL is projected forward for 13 years at the plan’s reported discount rate and then discounted to the present using the Index’s value as of the valuation date. This calculation results in an increase in AAL of between 13% and 14% for each one percentage point difference between the Index and the plan’s reported discount rate.
» Determining the value of plan assets. We will value plan assets at the reported market or fair value as of the valuation date.
» Calculating adjusted net pension liability. The difference between the adjusted liabilities and the market or fair value of assets is the adjusted net pension liability. This is the number that Moody’s will use to calculate the pension liability ratio incorporated in the state GO scorecard, as per our rating methodology. It is also a key number for Moody’s pension analysis under our local government rating methodology
» Amortizing adjusted net pension liability. The adjusted net pension liability will be amortized over a 20-year period on a level dollar basis, using the interest rate provided by the Index. This measure will be considered by rating committees along with other supplementary information about a government’s pension obligations.

In New Jersey’s situation, using market value of assets and the Citibank interest rate, which I have essentially been using in my updates, results in a reduction in the funded ratio from 65% to 35% and an increase in the unfunded liability from $45 billion to $130 billion.

So why would public plan actuaries view Moody’s as a ‘sore loser’?  Because they’re late to the dance.  Not only have I been using these factors but Joshua Rauh’s riskless-rate theory and GASB’s disclosure suggestions incorporate this logic.  Seeing official liabilities increase and funded ratios decrease annually have been blamed on a variety of factors but these public plan actuaries refuse to see that maybe it’s their own actuarial assumptions that have been flawed.

Who’s the real sore loser with limited credibility here?

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* Though it was one actuary who articulated it the rest of room seemed to be on board.  Unfortunately my notes are sketchy as taping did not seem to be allowed and there was no press coverage though the moderator did inquire if there were any press people in the room (no) and then if there were any bloggers (only me).  Apparently there had been an incident of a reporter covering a prior Public Plan session getting caught.  What happened to them was murky and it could have been as little as having to make a nominal donation to the Actuarial Foundation though as I was leaving the conference I did make a point of driving past Rock Creek Park to check if there were park police sealing off any perimeters.

Occasionally these traitors step over the line.  It happened in Bell, California and Passaic, NJ but I challenge anyone anywhere to match the employment contract that the Union County Democratic Chairperson wrote for herself with the Union County Improvement Authority.

Term: 5 years

Salary: $160,866.32

Sick Days: 15

Vacation Days: 35

Work from home

Have two people doing some of your work

Have a law firm getting a million dollars a year, for which they make the appropriate emolument, doing most of the rest.

And the most outrageous part:

According to Charlotte DeFilippo’s employment contract with the Union County Improvement Authority, as included in this list of attachments (pages 17 – 24)  submitted to the Local Finance Board that so upset the Star Ledger editorial board, included on page 22:

“EMPLOYEE shall not be discharged, disciplined, reprimanded, reduced in status, rank, or compensation, or deprived of any professional or employment advantage, or given any adverse evaluation of her performance without just cause, including EMPLOYEE’s malfeasance, which shall have first been determined by a court of competent jurisdiction.”

Anything else we can do for you?

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