With absolutely no influence from Steven Malanga’s hit piece last week in the Wall Street Journal the Society of Actuaries (SOA) has flip-flopped on a prior position and now the world will get to read “Financial Economics Principles Applied to Public Pension Plans” as soon as next week.
The Pew Charitable Trusts’ raw data is taken from the CAFRs of over 230 public pension plans comparing liabilities and assets (in thousands) by state. Five of those states happen to have liability amounts in the $190 billion range but when you look at the assets each has accumulated to pay those benefits a stark trichotomy emerges:
In a format and with a level of transparency that public plan sponsors and the Center for State and Local Government Excellence (SLGE) are comfortable with. From an email sent out by SLGE this morning:
Pensions and Investments published SLGE President/CEO Elizabeth Kellar’s letter to the editor (August 22, 2016) explaining that free, accurate pension data is already available at www.publicplansdata.org. An earlier commentary had argued that there was no comprehensive public pension database and that Congress should pass legislation to require state and local governments to file an annual report with the U.S. Treasury.
For those without the online subscription to P&I here is that letter to the editor:
New Jersey politicians failed to follow orders from their public-sector union paymasters who got so mad that they threatened to hold back bribe money to which the New Jersey Senate president (and lead bribe-taker) threatened legal action.
A rare situation (since most politicians do follow through on what they have been paid for) but this could be a valuable lesson for the unions who would help most New Jerseyans if they changed tactics.
The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure. According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%. Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”.
To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP’s administrator for a couple of decades right up until he was forced out in June 2014. Starting in 2005, Tettamant oversaw a plan to “diversify” the pension into “hard assets” and away from the “risky” stock market…because there’s no risk if you don’t have to mark your book every day. By the time the “diversification” was complete, Tettamant had invested half of the DPFP’s assets in, effectively, the housing bubble. Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.
Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets “performed” remarkably well throughout the “great recession.” But as it turns out, Tettamant’s “performance” was only as good as the illiquidity of his investments. We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have “discretion” over how they’re valued.
Not unlike other public plans so anxious to justify 8% valuation interest rates that they invest pension money with anyone willing to tell them that’s what they are getting.