HSI(3): “Stunning Ignorance”

Horizon Actuarial Services, LLC (HAS) in their letter to the Bailout Committee criticized this testimony of Joshua Rauh:

15. “Trustees had decades to undertake voluntary, remedial measures before resorting to trying to force participants to take cuts against promised benefits under the Multiemployer Pension Reform Act of 2014 (MPRA). Before reaching this point, they failed to use the many options that were at their disposal to ensure the solvency of plans. They have always had the right to gradually require greater contributions from employers, to make more realistic assumptions about investment returns, and to make more affordable benefit promises on a prospective basis.”

Does not seem too far out there but HAS went ballistic:

Pension Chat With NJ Governor

NJBIZ recently had a Q&A with New Jersey governor Phil Murphy to “get an update on where some matters of critical importance to the state currently stand – and where they may be headed.”

First up, pensions. Here is the full Q&A on that topic but, respecting your time, I have highlighted in magenta the fluff that you can safely skip:

HSI (2): Overfunding Danger

Horizon Actuarial Services, LLC (HAS) kicks off their letter to the Bailout Committee with:

Pension funding is a long term budgeting exercise. Over the life of a pension plan, the incoming total contributions and investment earnings must equal the total benefits paid out (plus expenses to operate the plan). It is, therefore, important to predict the long term investment earnings as accurately as possible so that contributions can be budgeted to satisfy this future benefit obligation. If the benefit obligation is discounted at a rate below the reasonably expected long term investment earnings, the contributions needed in the shorter term will be unnecessarily high….Multiemployer plans invest in fully diversified professionally managed investment portfolios that, over time, are expected to produce earnings well in excess of corporate bonds or Treasury instruments. Therefore, in the current economic environment, using discount rates based on these lower yields would significantly overstate the contributions required to fund future benefits.

Two points that the HAS actuaries are missing:

Horizon Self Interest (1) – Motive

The Joint Select Committee on the Solvency of Multiemployer Pension Plans (Bailout Committee) heard from ‘stakeholders’ verbally and later in writing. Here are those texts from James Naughton, Assistant Professor/Donald P. Jacobs Scholar, Kellogg School of Management, Northwestern University and Joshua Rauh, Director of Research and Senior Fellow, Hoover Institution, Stanford University.

This week Horizon Actuarial Services, LLC sent an 11-page letter to the committee “to express our serious concern about using corporate bond or Treasury yields as mandated discount rates for minimum funding purposes, which would endanger currently healthy plans, participants, and employers alike.  In this letter, we provide general commentary regarding discount rates plus specific commentary in response to points made by James Naughton and Joshua Rauh in their testimonies to the Joint Select Committee on July 25, 2018.”

Touching on practically every bit of specious reasoning to protect their turf, this letter rates a series and here it is – starting off with the motive.

Illinois Comptroller Pension Debate – at a Table

The three candidates for the Office of Illinois Comptroller this November (incumbent Democrat Susana Mendoza, Republican Darlene Senger and Libertarian Claire Ball) had a lower profile debate which included a mention of whether cutting benefits to deal with the state’s pension debt should be on the table:
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The Consideration Model for public pension negotiations was explained by geo8rge in a comment on the last blog:

Illinois Pension Debate – Not Even a Table

The question came in the middle of the Illinois gubernatorial debate tonight between Republican Gov. Bruce Rauner, Democratic challenger J.B. Pritzker, Libertarian candidate Kash Jackson and Conservative candidate Sam McCann. What will you do on the $129 billion hole in the retirement system for public employees?

First the would-be spoilers:
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And from the major party candidates:
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Summarizing the answers:

Connecticut Pension Debate On the Table

The second question in the first Connecticut gubernatorial debate last week between Democrat Ned Lamont and Republican Bob Stefanowski was on the $100 billion hole in the retirement system for public employees:
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They seemed to agree on the $100 billion number but, as in the New Jersey gubernatorial debates last year, something was missing.