Breaking News: Tenth Union Plan Files

On September 27, 2016 trustees of the Automotive Industries Pension Fund out of Alameda, CA became the tenth multiemployer (union) plan to file for benefit cuts under MPRA in an attempt to avoid insolvency.

From their latest 5500 form here is the plan’s relevant data:

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NJEA Puppets

Mike Lilly through the American Enterprise Institute released a paper this week titled Pensions, Politics, and the New Jersey Education Association (NJEA) which argued that the NJEA has undue influence over policy issues in this state, pointing out:

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Next NJ Governor on Next Step for NJ Public Pensions

Phil Murphy got the political boss of Union County on board and is virtually assured of being the next governor of New Jersey.

Yesterday Murphy held a townhall meeting at The College of New Jersey where after over an hour of opening remarks the audience got to ask questions.  The first one was on the New Jersey pension system:

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Not Feeling the Squeeze

The Manhattan Institute just released a report on how pension costs are crowding out education spending. It is titled ‘Feeling the Squeeze‘ and fingers some novel villains:

Almost every state has experienced large pension cost increases, but eight states—Arizona, Colorado, Indiana, Michigan, North Carolina, Nevada, Texas, and Wisconsin—experienced the double whammy of declining per-pupil expenditures and growing pension contributions.

Where is New Jersey?
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ALEC Has It At $5.6 Trillion

The American Legislative Exchange Council (ALEC) came out with a report this week based on reviewing the latest available actuarial valuations of over 280 state-administered pension plans and adjusting the discount rate from an average of 7.37% to a ‘riskless’ rate of of 2.344%.

I disagree with the methodology since I believe the funded status of a particular plan should be considered when adjusting the wishful discount rates that the plan actuaries who politicians hire are ‘encouraged’ to use.  That is, a plan closer to full funding should be able to use a rate closer to that 7.37% while a pure pay-go plan (Puerto Rico) should use a rate closer to 0% since that is about what they are getting for the few days any money stays in the trust.

Nevertheless there were some nice charts ranking states by Funded Ratio, Unfunded Liabilities, and Unfunded Liabilities Per Capita.  However, I did not see where they had the underlying data so, based on those charts, I decided to extract some other numbers.

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Pondering or Sleeping on NJ Pension Reform?

Thomas J. Healey, a senior fellow at Harvard’s Kennedy School of Government, coordinated the work of the New Jersey Pension and Health Benefit Study Commission which has been totally ignored leaving him little to do but vent in a Baron’s editorial* that concludes:

Elected officials have an obligation to look beyond short-term political expediency and undertake comprehensive reforms that do right by their employees, retirees, and taxpayers. Everyone must wake up to the fact that unfunded pension and health benefit liabilities are explosive. Expecting conditions to improve with an uptick in the stock market or the imposition of a new tax or two is irresponsible, if not delusional, governance.

Which will continue at least through 2017 and the next gubernatorial election but Mr. Healey may have unintentionally hit upon the reason for the stasis earlier in his piece:

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Milliman’s GASB 68 Gambit

We got a new study of the funded status of some public pension plans. This one with a $1.9 trillion Scare-Number. Though, this year, with a twist:

Starting with our 2016 edition of the Milliman Public Pension Funding Study, we have shifted our focus away from the accrued liability figures that are used to determine a plan’s funding requirements; rather, our study is now based on the Total Pension Liability figures used for financial reporting under Governmental Accounting Standards Board Statements No. 67 and 68 (GASB 67/68), which apply to governmental entities.
The New Jersey website where those GASB valuations can be found explains:
Government Accounting Standards Board (GASB) Statement No. 68 supersedes financial reporting requirements for the State and local governmental employers under GASB Statements No. 27 and No. 50 as they relate to pensions that are provided through the State-administered retirement system. This new statement establishes standards for measuring and recognizing on each participating public employers’ financial statements their allocated share of the plan’s net pension liability (NPL), deferred inflows and outflows, and pension expense. Each participating public employer must begin disclosing the information required under GASB 68 in their financial statements for reporting periods beginning after June 15, 2014.
As it turns out Milliman did not have to go too far to get the numbers on the New Jersey Teachers’ Pension and Annuity Fund (NJTPAF) since they do that valuation (which at a funded ratio of 28.7% happens to be the second lowest in their study) but when you compare discount rates…..

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