The New York Times reported today that a “blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.”
Basically the report made four very sensible recommendations that most citizens would be amazed had to even be recommended. Anyone without ulterior motives should have no problem agreeing with three of them:
- a plan’s funding goal should always be 100 percent
- disclosure of a “standardized plan contribution” that would be calculated by all plans using the same discount rate and funding methodology
- not using funding instruments that delay cash contributions (i.e. Pension Obligation Bonds)
Then there is the tricky, though no less valid, recommendation:
Professor Joshua Rauh moderated a webinar on the public pension crisis that covered many bases and is well worth watching all the way through:
but for those interested in the role actuaries play here are some excerpts:
A hallmark of government today is effective secrecy. Meetings at which decisions are purportedly made are publicized in small print among hundreds of legal ads. The media, if they even bother to report real issues, print official happy-face press releases. Consequences of actions, if even disclosed, get buried in reports that run on for hundreds of pages.
What all this leads to is surprise when an absurd concept like providing an extra monthly payment to current retirees comes to light as it did in Detroit recently as part of an orchestrated campaign to now cut all benefits. Where in the private sector do pension trustees get told they have extra money and decide to dole out a little to people who have no vested right to it except what is created after the fact?
But when it is oblivious taxpayers footing the bill for the benefits of those making the rules we get concepts like the 13th check and a few others:
Roger Lowenstein, the author and financial journalist who has been in front on so many important issues including the public pension crisis, has an article in this weekend’s WSJ titled ‘The Long, Sorry Tale of Pension Promises‘ which ends with:
“if you want governments to come clean, go after their drug of choice—credit…..Before we get more Detroits, or more Studebakers, the federal government should enact an Erisa (with teeth) for public employers. More simply, it could announce that local governments that fail to make timely and adequate contributions to their pension plans would lose the right to sell bonds on a tax-free basis. That would get their attention.”
I thought so too, once, but with Mr. Lowenstein’s imprimatur making it more likely and upon reflection I now see two problems with an ERISA for public plans.
Today the New York Times noticed though they framed it as a dispute between two camps. There is no dispute. All you need is a working knowledge of annuities and government and the facts of the situation are indisputable.
There is so much about the Detroit bankruptcy (even if it doesn’t hold up) that will impact all public benefit plans and government finance in general for decades yet there are several related issues (none worthy of a full blog post yet) that I have not seen addressed:
Detroit filed for bankruptcy today. The details of how they will default on pension promises to 32,000 people remains a deep dark secret but we do have precedent in the private sector and there may be a silver lining playbook in Detroit.
“America cannot continue sleepwalking into the financial disaster that awaits us if we do not get the public-pension debt crisis under control,” Mr. Hatch is set to say in prepared remarks on the Senate floor Tuesday. “The problem is getting more serious every day and cannot be remedied merely by fine-tuning the existing pension structures available to public employers.”
Mr. Hatch said his proposal, which would not be mandatory for governments, offers cost certainty for state and local governments and steady retirement income for their employees.
WSJ, July 9, 2013
Acknowledging that there is a “public-pension debt crisis” is a good first step but proposing that insurance companies fix it through deferred annuities is naive and dangerous because it ignores some basic facts:
School superintendents are by far the highest paid government employees in New Jersey, making even more than heads of some Utilities Authorities, though they do need to come to work occasionally.
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…..