PollutiFact on Pensions

PolitiFact.com is a project operated by the Tampa Bay Times in which reporters and editors from the Times and affiliated media outlets “fact-check statements by members of Congress, the White House, lobbyists and interest groups.   They publish original statements and their evaluations on the PolitiFact.com website, and assign each a “Truth-O-Meter” rating. The ratings range from “True” for completely accurate statements to “Pants on Fire” for outright lies.

Today the PolitiFact New Jersey arm focused on a recent campaign flyer claiming:

“New Jersey’s once-broken pension system is now solvent.”

The verdict was that this was a “half-true’ but the astounding part was which half the PolitiFact people considered true.

By their logic:

The underfunded pension system that set off a political firestorm two years ago when Gov. Chris Christie and the Legislature ordered higher employee contributions and suspended Cost Of Living Adjustments for beneficiaries is solvent?  In pension terminology, the part of the claim is correct. But the state pension system was once broken? That’s debatable.

That’s the debatable part?  Are these people idiots?  By what measure are they considering the a 30% funded ponzi scheme solvent?

Let’s explain, starting with solvency.   Some dictionaries define solvency as the ability to pay debts – and O’Scanlon and others say New Jersey has enough money in its pension funds to cut checks every month for retirees and have those checks clear.

Where are these people getting their expert advice from?

Two pensions experts we spoke with agreed with O’Scanlon’s assessment of solvency and emphasis on the state’s pension reforms.   “If you have enough money to pay benefits in the short term or in the foreseeable future, to the extent that plans have enough cash on hand to pay benefits for the next 10 or 13 years, it’s solvent,” said Jean-Pierre Aubry, assistant director for State and Local Research at the Boston College Center for Retirement Research.

  “A pension fund is solvent if it is able to honor its obligations,” said Keith Brainard, research director for the National Association of State Retirement Administrators in Washington, D.C. “If they can pay their pension liabilities they would be considered solvent.”

Two think tanks churning out arguments, however silly, to facilitate the escalation of public employee benefits.  How much more wrong can you be steered?

New Jersey is able to pay its pension obligations, so it’s solvent. But was it once broken, as the mailer claims?

“We would define broken as unquestionably heading on the path to insolvency,” O’Scanlon said.   “You couldn’t continue on the path we were going and end up with a sustainable system,” he added. Either we were going to have bankruptcy or we were going to have massive tax increases to cover the obligation. With the reforms we did we now brought it in to solvency. It’s on a completely different path since the reforms.”   But O’Scanlon also admitted that the state has always been able to pay its pension obligations. If that’s the case, the system was never broken.

By that measure Bernie Madoff was operating a perfectly solvent investment operation right up to the time they caught him at it.  Do they even look at the numbers?

Now let’s look at pension funding levels.

Each of the state’s five open pension accounts is funded well below 80 percent, which Aubry said is a threshold that has come to mean “adequate.” The state’s total underfunded liability was $47.2 billion as of July 1, 2012, according to an annual report on the state’s pension fund.

The state’s Public Employees Retirement System account was at 49.1 percent funding as of July 1, 2012; teachers, 59.3 percent; police and firefighters, 51.5 percent; state police, 71.2 percent; judiciary, 46 percent.

Aubry and Brainard both said 80 percent funding is an oft-cited threshold of whether pension accounts are “healthy.”

“Eighty percent has come to be recognized by practitioners as an adequate funding level,” Aubry said. “The notion may be that at 80 percent funded you do have enough money in the pension fund to pay benefits for the foreseeable future, but the underfundedness basically helps battle the push for increase of benefits.”

Brainard said looking at funding ratios is just one metric of determining the health of a pension fund, “but it’s not the be-all, end-all.”

“The objective should be to reach full funding but there’s nothing necessarily wrong with being underfunded,” Brainard added. “The issue is whether funding the plan is causing fiscal stress for the plan sponsor — making the contributions to ensure that the benefits can be paid.”

Bill Quinn, a state Treasury Department spokesman, said New Jersey’s underfunded liabilities will flatten out and stop growing as the state puts more money into the pension fund each year as required by the reforms.

 Of course 80% is a bullshit number that the American Academy of Actuaries looked to debunk.  But reread the excerpt above (which is likely more than the PoliFact people did).  Even using the state’s phony actuarial assumptions, funding levels are well below that arbitrary 80% magic number.  All they have is the word of a New Jersey government official that unfunded liabilities will flatten out because there is some law on the books.  Who would fall for that reasoning?

Our ruling

A primary campaign flyer from Assembly members Declan O’Scanlon and Amy Handlin, and state Sen. Joe Kyrillos last week claimed, “New Jersey’s once-broken pension system is now solvent.”   O’Scanlon said ‘once broken’ refers to the state’s pension system being on a path to insolvency or bankruptcy without major reforms – but admits the state has always been able to pay its pension bills. If the system was once broken, those bills wouldn’t have been paid. Furthermore, O’Scanlon and experts told us that a pension system being able to pay its obligations means the system is solvent. We rate this claim Half True.

I rate this PolitiFact claim Half Assed and a clear case of polluting the issue with their ‘facts’.

15 responses to this post.

  1. Posted by Anonymous on June 9, 2013 at 1:03 pm

    Do all of our opinions and comments have any effect at all? I think not

    Reply

    • Posted by Tough Love on June 9, 2013 at 2:39 pm

      Into which category do you fall?

      Quite a few of those posting under “Anonymous” (likely being Public Sector workers) don’t want to fix the current injustice to Private Sector Taxpayers.

      Reply

    • Posted by skip3house on June 9, 2013 at 2:47 pm

      I will second this thought.

      Reply

  2. Posted by Tough Love on June 9, 2013 at 1:52 pm

    John, I too looked at that article with some amazement. The problem is really with “solvency” being the measure. While that may be the appropriate measure for entry into bankruptcy, the long-term promises of DB Plans and the many assumptions that go into funding calculations it make a static measure such as solvency, meaningless.

    I’ve always thought the best (and most transparent) way to show the Public Sector DB Plan funding status is via a grid of results, varying the assumptions as to investment earnings rates, employee pay increases, employee termination rates,etc. For each grid cell, the Level Annual (% of pay) contributions to fully fund the Normal Cost over the worker’s career,and the Level Annual (% of pay) contributions to amortize existing underfunding over say 5,10,15 years should be shown separately. The Taxpayers’ cost is then the Total Cost less direct employee contributions. Taxpayer costs should then be translated into the implications for Taxpayers under the various grid cells …. i.e.,a year-by-year projection.

    My guess is that for NJ’s DB Plans, with the exception of a small percentage of outlier cells (e.g, those with high investment returns and low pay increases) the Taxpayers’ share of the Total Level Annual % of pay will steadily rise for decades, in many cases exceeding 50% of pay, and, w/o VERY material reductions in the accrual rate for the FUTURE Service CURRENT workers, become extraordinarily burdensome for Taxpayers ……… accelerating the exodus of NJ’s most productive citizens and Businesses.

    And all for what ….. so Public Sector workers can not only keep the excessive pensions they have already earned for PAST Service, but can CONTINUE to accrue FURTHER pensions credits under the SAME grossly excessive formulas and provisions in place today ?

    I thought that the first step in getting yourself out of a deep (financial) hole …. is to stop digging.

    Reply

    • Some amazement? This was beyond Owell-speak. The truth didn’t even make an appearance tangentially.

      Though this is the debate we’re having in New Jersey among the Democrats who get their names on ballots. Some actually believe there was nothing wrong with pension solvency and no changes should have been made. The ‘moderate’ ones (currently the leadership though not the gubernatorial candidate) approve of the changes without recognizing their otiosity.

      As for Brainard, I expect he’s smart enough to understand that his quotes were being misused and I’ve got audio evidence:

      Reply

  3. Posted by Javagold on June 9, 2013 at 7:10 pm

    It doesn’t matter. They can no longer escape what is coming in the very near future.

    Reply

  4. Posted by brooklyn91941 on June 9, 2013 at 8:12 pm

    That doesn’t even include the Health Care obligations

    Reply

  5. Posted by jackdean on June 9, 2013 at 8:19 pm

    Nicely done, sir!

    Reply

  6. Posted by JerseyGuy on June 11, 2013 at 9:51 pm

    I really enjoy your blog. I’m currently searching through the NJ Pension Database and it is truly astounding to see the size of these pensions. Quick question. What is the “monthly pension allowance” amount? Is this an additional pension payment for each beneficiary?

    Reply

    • Thank you and I really enjoy doing this blog.

      Looking at a typical retiree:
      https://www13.state.nj.us/pls/nj_public/f?p=916:199:0::NO:RP,199:P199_TRANS_REC_KEY:297938

      The Monthly Pension Allowance is the amount of the check they get each month. It’s payable for their lives and sometimes for the lives of any beneficiaries but the form of benefit is not disclosed. Add on the cost of lifetime health benefits (typically family benefits) and you’ve got an ever expanding population of non-workers getting benefits that were only partially funded and will have to be made up by future taxpayers if they’re to get their full promised benefits. That can’t happen.

      Reply

      • Posted by Tough Love on June 12, 2013 at 1:06 am

        Speaking of “ever expanding population of non-workers getting benefits”, check out this article from Illinois on how a retired teacher is getting a $400,000 annual pension. Pay particular attention to the component of the $400,000 coming from a “Revisionary Pension” associated her deceased husband’s pension,and noting that it is IN ADDITION to her 50% survivor annuity. You can find the article here:

        http://www.dailyherald.com/article/20130529/news/705299905/

        Quoting from the article …

        ““TRS calculates a reduction of the retiring worker’s pension to cover the cost of pension payouts lasting longer than actuaries initially projected. Retirees get that slightly reduced amount until they die, then the beneficiary begins collecting that same payout. TRS officials said the reduction makes reversionary pensions “actuarially neutral.” …… In the Lopatka case, the husband’s pension was reduced 12.6 percent, according to TRS records””

        Being somewhat familiar with the cost of pension options, this is off the wall ridiculous. The 12.6% reduction would be about right for a 100% survivor benefit, but hardly when this option is only elected by those on their deathbed.

        As they say … “You can’t make this stuff up”

        Reply

        • Posted by skip3house on June 12, 2013 at 11:42 am

          Going along with a previous comment by someone wondering if anyone cares…..
          Could it be possible these loopholes for abuses are deliberate?
          Certainly offers incentives for many of ‘us’ to assist those in power, inadvertently setting ‘ourselves’ up as distracting targets, instead of the real power brokers’ manipulations of vast sums into their own already enormous fortunes/power.

          Reply

  7. Washington’s pension system is one of the largest and most complex in the nation. One of every 14 Washingtonians either receives checks from the state system or is in line to when they retire.

    Reply

  8. Public sector workers in California have already been the subject of relentless attack. A purported reform of the pension system was passed by the state legislature last September which raised the retirement age from 55 to 67 for public employees. New workers will pay half of their pension contribution out of their own salary, and the law stipulates that the same requirement be laid on current employees within five years’ time.

    Reply

    • ‘….. Are these people idiots? By what measure are they considering the a 30% funded ponzi scheme solvent?….’

      Deliberate abuse of facts to create ‘statistics’ to create political point………

      Senator Ted Cruz (R-TX) delivered the Commencement speech May 11, 2013, at Hillsdale College. Attempting to disparage political left of reaching down the hand of government compared to right’s opportunity ‘ladder’, Senator Cruz mentioned the great movement of people in each income quintile.

      He ‘proves’ opportunity is there by the 60% movement of people from the lowest quintile in 1999 to higher ten years later. Also, 40% of ‘richest’ (not defined exactly) were dropped to lower quintiles.

      My contention, based on growing income gap, is the top and bottom quintiles became defined again by this growing gap, and most making the same, rose just because incomes were lower for too many than in 1999………..?

      Reply

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