Moodier Pension Numbers

Moody’s released a report yesterday where they took two year old data on state public pension plans and revised their numbers to take into account (a) market instead of ‘actuarial’ value of assets and (b) an interest rate for liabilities of around 5.5% instead of 8%.  The headline was that funded ratios were not 74%, as officially reported, but 48%.

Overall a welcome report with much useful information yet the real picture is murkier due to:

Other Asset gimmicks (besides smoothing)

  • Pension Obligation Bonds are included in assets yet this is money received in prior years that future taxpayers (may) pay to bondholders as their pension contributions and should be treated as a liability.
  • All those hedge funds that public plans are gobbling up primarily because they can put their own (inflated) value on them are due for a bust.
  • Employees’ own contributions in either explicit Defined Contribution arrangements or to fund Defined Benefit pensions, which theoretically will need to be returned to them with interest upon plan collapse, overstate the amount available for straight annuities.


Everyone in the public plan arena has an incentive to lie and anyone finding creative ways to do it (POB,s 8-year asset smoothing) gets rewarded.


Defined Benefit plans are costly and decades of hiding that fact from all parties gives us Detroit which, were it included in the Moody’s report, would show that their funded ratio was not really 90%, as the plans officially report, but about 64% according to Moody’s methodology, well above most public plans but what’s going on in Detroit right now:

“It’s unbelievable that this day and time, in 2013, workers are threatened with being stripped of part of their pension and health benefits,” said Roots, a 76-year-old who worked three decades for the employment and training department. “Bankruptcy is one thing, but to start a remedy going after retirees?”

Shrinking benefits for 30,000 employees and retirees is part of Emergency Manager Kevyn Orr’s plan to avoid the largest U.S. municipal bankruptcy by erasing a $386 million deficit and reducing long-term debt of at least $17 billion. Orr proposes switching many retirees to federal health-care programs and eliminating pensions for employees with less than 10 years of service. His plan would also mean undetermined cuts to retirement checks.

Imagine what will happen to participants’ benefits in plans that are less than 90% funded (officially).


9 responses to this post.

  1. Posted by Anonymous on June 28, 2013 at 1:09 pm

    NJ and Tough Love, perfect together. Both in heavy denial.


    • Posted by Tough Love on June 28, 2013 at 1:22 pm

      Really ? Those who have paid attention, know that it’s the Unions/workers and politicians (who refuse to enact REAL reforms to this sinking ship), that are in denial.


  2. Posted by Tough Love on June 28, 2013 at 1:19 pm

    These percentages are even worse that what has been slowly emerging from the Moody’s new direction. Earlier articles suggested an average reduction from the “official” funded ratios of 20-25% vs this new release that shows average reductions of 35% (i.e., from 74% to 48%.).

    48% ! … noting that with similarly valued PRIVATE Sector Plans, Gov’t regulations force a freeze on further benefit accruals when the funded ratio drops below 60% …… and exactly what should be imposed on PUBLIC Sector Plans.

    This is a huge problem, for BOTH Taxpayers and the participants in these Plans. While the taxpayers will continue to be stung, clearly many Plans will need to reduce the promised pensions, not only for New workers (a no-brainer) and for the FUTURE Service accruals of CURRENT workers (yes, that’s not far off), but for the PAST service accruals of current workers (and in the worst cases, for those already retired as well).

    And POB’s …. always hated them, and unfortunately, it’s working out just as I suspected. The proceeds of POB sales become Plan property (never to be given back), and all they do is help disguise the need for REAL pension reform (which means significantly REDUCING the promised pensions from the absurdly generous levels promised today) and shift the Taxpayers obligation from payments due these excessive Plans to payments due the bond purchasers. Personalty, I’m MUCH more comfortable telling someone (the Plan participants) who have been promised way too much (by elected official’s whose favorable votes on such matters were bought with campaign contributions and election support from the insatiably greedy Public Sector Unions) that they’re not going to get all that has been promised, than defaulting on the Bond purchasers who in no way tried to screw (nor colluded with) anyone.


  3. Posted by Javagold on June 28, 2013 at 8:27 pm

    time for all the greedy public takers to BAIL IN !!!!!!


  4. Posted by Filboid Studge on June 28, 2013 at 8:28 pm

    It seems fashionable to “blame” public sector unions for the pension problems. By law, the unions must demand all they can for their members. Our elected officials are not bound by this law, and they can and should say “No!”. They have not said this to unions (or other highly paid non-union workers). Across the country, we need to elect new officials. This scenario is highly unlikely. If you want to find someone to blame, look in the mirror.


    • Posted by Tough Love on June 28, 2013 at 9:26 pm

      While I understand your point (that being that our elected officials did not HAVE TO acquiesce to the demands of the Unions), here’s an example of the insatiable greed of Public Sector Unions (form Contra County California)”

      “Contra Costa County employees have even sued the state, claiming they have a “vested right” to use vacation and sick leave payouts to spike their pensions.”

      From this source:

      While a good many Elected Officials should be jailed for accepting bribes, Public Sector Unions are a Cancer on Society and should be outlawed.


  5. Posted by bruce paterson on June 29, 2013 at 7:48 pm

    i always found it ironic that only in govt do the employees get a chance at selecting their own boss who has the capacity to give them raises and benefits….and thus the purpose of public sector unions.


    • Posted by Tough Love on June 29, 2013 at 9:53 pm

      And that boss being one who knows that he will always get a bit MORE than his underlings. Hence he give them lots …. and he too gets more.

      What a corrupt system.


  6. The investment market losses experienced by public pension funds in 2008-09 increased public pensions’ unfunded liabilities, which, in turn, increases the cost of the plan. Meanwhile, the Great Recession decimated state and local government revenues, an experience from which these plan sponsors are still recovering. On a national basis, the resulting effect of the combination of higher plan costs and reduced government revenue has been a reduction in contributions relative to the Annual Required Contribution, or ARC.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: