The story first appeared in the International Business Times (IBT) with lots of charts under the screaming headline:
Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion
Today it was picked up by AOL, Esquire, and Daily Kos all using the angle that Christie wants to take money from retirees barely scrimping by so he can give it to his Wall Street friends who then donate to political campaigns of his choosing. But is that the real story?
The July 1, 2013 actuarial reports for the New Jersey pension plans are coming out and if you are of a mind to explain to your teacher friends why they will soon be seeing Detroit-type ‘adjustments’ to their pensions just point them to page 8 of the Milliman report for the Teachers Plan – TPAF – (Buck does the valuations for the other 6 plans in the system) titled ‘Risk Measures.’ Search the Buck reports and you won’t even find the word ‘risk’ mentioned but Milliman beginning with their July 1, 2009 report thought it a good idea to mention that…..
According to a story in the Detroit Free Press:
Orr proposed 34% cuts to the pension checks of general city retirees and 10% to police and fire retirees.
But those cuts would be reduced to 26% and 4%, respectively, if the city’s two independently controlled pension boards agree to support the plan of adjustment.
The difference is probably because retirees in the General City plan likely get Social Security benefits.
The bottom line:
- Benefit accruals under the current formulas cease as of June 30, 2014
- GRS benefits cut 34% for retirees and beneficiaries with the July, 2014 check, 34% (and maybe more) for those still working, and no mention of vested terminees
- PFRS benefits cut 10% for retirees and beneficiaries with the July, 2014 check, 10% (and maybe more) for those still working, and no mention of vested terminees
- Hybrid plans to be set up for workers to accrue benefits after July 1, 2014 as part of a “hybrid program that will contain rules to shift funding risk to participants in the event of underfunding of hybrid pensions”
- A bizarre carrot allowing for an undefined “restoration payment” in 2023 if a plan is 80% funded but requiring the interest rate used for valuing liabilities to be 6.25% for GRS and 6.5% for PFRS.
The full text of the plan is out and here are the excerpts relevant to the Detroit GRS and PFRS:
The judge’s written decision to allow the Detroit bankruptcy is a fascinating read. I am on my twentieth scan of pages 11 thr0ugh 16 which purportedly explain the COPs and Swaps Transactions and am still looking to unlock the mysteries of those words. But it is the reference to the supposed $3.5 billion unfunded pension obligations on page 8 that validates a point that I have been trying to make here for years:
Detroit bankruptcy is a go so now the question becomes how much retirement benefits will be cut. Emergency manager Kevyn Orr provided some clues in these pension-related excerpts from his press conference today:
Based on these remarks my original timeline prediction changes a bit:
Next Tuesday, December 3, at 9:am, according to a notice released this afternoon, is when Judge Steven W. Rhodes will render his decision on whether Detroit can go bankrupt to avoid pension and OPEB obligations. Considering that our system of ‘justice’ often succumbs to the vagaries of expediency and whatever decision is read will almost certainly be appealed, I still have a hunch as to what will happen.
- Continue reading