Contracts, Schmontracts, As Long As I’m President

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The State Attorney General filed a reply brief in the pension payment case that basically came down to viewing “contracts” as trite anachronisms when at one time:
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Below are excerpts from that brief:

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Real Number on New Jersey Pensions – 6/30/14 Update

The June 30, 2014 actuarial valuation reports are out.

You might be seeing numbers tossed at you regarding deficits in the state pension of $53 billion and funded ratios of 61%**.  They’re way off.  Based on actuarial reports for the three largest plans I put their real deficit at $158 billion and their real current funded ratio at 33%. Let’s take this in stages as we replace official figures with real-world ones for these three largest plans.

OFFICIAL NUMBERS @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Actuarial Assets………29.0…………29.9………25.1……………..84.0
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-24.7…………-19.2……….-9.5……………-53.4
Funded Ratio………..54.0%………60.9%…….72.5%………….61.1%

The funds did not really have $84 billion in assets at June 30, 2014. The ‘actuarial value’ in this case means a phony value which in the private sector is used to ‘smooth’ valuations but in the public sector is used to distort. Here are the figures when we use market value of assets:

OFFICIAL NUMBERS WITH ASSETS AT MARKET @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0………25.1……………..81.7
Liabilities……………….53.7…………49.1……….34.6…………..137.4
Deficit………………….-26.1…………-20.1……….-9.5……………-55.7
Funded Ratio………..51.4%………59.1%…….72.5%………….59.5%

Next, we turn to the liability side of the ledger. As I detailed previously on TPAF the underlying assumptions upon which the value of these promised benefits are based (primarily the 7.9% interest assumption in a plan that demands liquidity) understate the true benefit costs. Here are the figures using realistic liability valuations:

BURY NUMBERS WITH MARKET VALUE @ 6/30/14 (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury Liabilities……….83.0…………74.0……….53.0…………..210.0
Deficit………………….-55.4…………-45.0………-27.9………….-128.3
Funded Ratio………..33.2%………39.2%…….47.4%………….38.9%

Next we turn to the COLA theft.  2010 liability numbers were adjusted for the plans to take into account the elimination of all future Cost-of-living adjustments that public employees were promised – in writing.  Were that reinstated the respective adjustments that artificially lowered liabilities will need to be reinstated to the tune of 20% (TPAF), 15% (PERS), and 19% (PFRS) giving us:

BURY NUMBERS WITH MARKET VALUE AND COLA (in billions)
……………………………TPAF………..PERS……..PFRS……………TOTAL
Market Assets…………27.6…………29.0……….25.1……………..81.7
Bury/COLA Liab…….99.6…………85.1……….63.1…………..247.8
Deficit………………….-72.0…………-56.1………-38.0………….-166.1
Funded Ratio………..27.7%………34.1%…….39.8%………….33.0%

For the year ended June 30, 2014 there was about $10 billion paid out in benefits from the system. With early retirement incentives, the return of cost-of-living adjustments, longer life expectancies, and baby-boomer retirements this payout number should hit $12 billion in three years by which time the fund will be depleted (after returning the interest-adjusted contributions made by employees and that market correction hits for all those ‘alternative’ investments) unless, of course, New Jersey politicians step up and do the honorable thing. There’s a debate as to whether you can put a number on that happening.

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* This is an update of pieces I did on April, 2009, February, 2010 , February, 2011, January, 2012, March, 2013, and March, 2014 with very minor changes in the text.

** Or not, so far there has been no coverage of these numbers based on a quick bing search.

Admitting Insolvency Risk

Any objective observer with even a minimal understanding of pension funding has to recognize that if New Jersey continues funding pensions the way they have been doing there is a significant risk of insolvency within a relatively short period of time.  But with the release of the June 30, 2014 actuarial valuation reports we now have an actuary for the state making this statement in bold print in the first paragraph of their comments:

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Legislators Argue For Their Pension Law

On Monday it was reported that in an “amicus brief made public today, Senate President Steve Sweeney (D-3) and Assembly Speaker Vincent Prieto (D-32) announced that they plan to officially inform Superior Court Mary Jacobson of their disapproval of the state’s failure to make the payments” into the state pension plan as required by the 2011 pension law.

With that warning the Office of the Attorney General filed their opposition to these lawmakers getting involved in this case since their only connection is that they were named in the original complaint and they happen to have enacted the law being interpreted

The legislators’ amicus brief was filed today and among the points made therein:

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CAFR Update

The June 30, 2014 CAFR on New Jersey Pension and OPEB benefits is out and after going through the last six years of income and expense numbers and putting selected believable items into a spreadsheet there are some interesting trends when comparing June 30, 2009 to June 30, 2014.

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Arguing For Making the NJ Pension Mini-Payment

There was a lot of activity yesterday in the New Jersey pension payment case as those seeking to have the ‘full’ payment made filed 1,073 pages of briefs and appendices making their points.  After skimming through the material this is what I got out of it:

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Wannsee on the Potomac

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So it is when you do not want people to know what you are doing and apparently we have the same mentality when it comes to the Internal Revenue Service (IRS) and those who make their living through them.

At this week’s Enrolled Actuaries meeting it was announced that the IRS had, independently of any public opinion, decided to stop issuing determination letters on individually designed pension plans. I took notes of that statement and also recorded Kyle N. Brown confirming that the decision was final and the discussion was now as to the ‘how':

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I understood that the IRS had their funding problems but I considered such a radical departure from prior procedure taken unilaterally as beyond the pale.  And I was not the only one:

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I view this as an important policy issue open for debate but some would have it remain a secret only for insiders.  I got this email an hour ago:

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