The Full Milliman Report

As requested by Detroit COO Chris Brown, Milliman, Inc. began an “analysis of the City of Detroit’s actuarial liabilities in support of the City and Financial Advisory Board (“FAB”). ”  They sent Mr. Brown a ten page letter on July 6, 2012 which, after some Very Rough Preliminary Guesstimates (VRPG), put the unfunded pension liability at $5.6 billion and the liability for retiree health care at $6.6 billion ($3.1 billion for DGRS and $3.5 billion for PFRS).

In prior blogs I reviewed how they arrived at their pension numbers in some detail.  The rest of the letter is a warning that GASB has some ideas that would further inflate that pension underfunding number and another VRPG on the value of retiree health benefits.

Please review the letter and tell me what strikes you.  For me there’s just this one other thing to note.

As of 6/30/11 the General Retirement System reported having 7,250 active participants and 11,555 retirees while the Police and Fire System reported 3,809 active participants and 8,379 retirees.  The OPEB liabilities Milliman came up with for the plans were $3.1 billion and $3.5 billion respectively.  Initially one would be curious as to how an OPEB plan with fewer total participants gets a higher liability valuation (plan features; earlier retirements?) but then I came across a press release from the Detroit Police Members Association which mentioned that “unlike the retired City of Detroit general employees, the police department retirees do not have social security benefits as supplemental income and are not eligible for Medicare”.

Using my own VRPG that OPEB cost per participant comes to about $165,000 for each General System member and $295,000 for each PFRS participant.  I would have expected a larger difference between the groups assuming all the PFRS people won’t be getting Medicare.

5 responses to this post.

  1. Posted by Tough Love on August 13, 2013 at 2:01 pm

    If the Safety retirement systems cover Spouses (and children ?), the true cost of their generous Family Health Plan coverage ………… reflecting the higher actual ages and medical need of retirees, and not averaged-in with younger actives ……. and w/o a Medicare offset (for those over 65) is easily $20K annually (and likely closer to $25K) TODAY.

    At the ages safety workers retire, and considering that medical care inflation will easily exceed any reasonable discount rate for determining the present value of this healthcare benefit, the present value is therefore GREATER than the $20K (or $25K) times their average life expectancy. For a 55 year old new retiree, we’re likely looking at $500K-$750K, not $295K.

    Reply

  2. You do not have to go past the hand written margin note -‘what is a smoothed asset’ on page 2 to know the system is deliberately screwed up for special inteest benefits.

    Reply

    • Posted by Tough Love on August 13, 2013 at 9:15 pm

      I read that differently.

      If the intended recipient of the Milliman report made that hand notation, it shows just how utterly illiterate he/she is with respect to pension matters. No wonder these Plans are in such a financial mess with such incompetents running the show.

      Just picture how easily this person could be hoodwinked into a approving a VERY expensive benefit provision presented by the Union to be important to Plan participants, but (falsely) of minimal financial consequence.

      Reply

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