Detroit’s Official Valuation Reports are “No Proof”

The judge’s written decision to allow the Detroit bankruptcy is a fascinating read.  I am on my twentieth scan of pages 11 thr0ugh 16 which purportedly explain the COPs and Swaps Transactions and am still looking to unlock the mysteries of those words.  But it is the reference to the supposed $3.5 billion unfunded pension obligations on page 8 that validates a point that I have been trying to make here for years:

“As noted, the objecting parties do not seriously challenge the City’s estimates of its debt, except for its estimates of its unfunded pension liability.  The plans and others have suggested a much lower pension underfunding amount, perhaps even below $1,000,000,000.  However, they have submitted no proof of that.”

The judge saw no proof.  Perhaps there are crackpots out there throwing around that “less-than-$1 billion” number but their wild notions can hardly be considered proof in a court of law and under oath.  But wait.  On the very next page (9) we have this paragraph:

“As noted, the two pension plans and the City disagree about the level of underfunding in the plans.  Gabriel Roeder Smith & Company is the funds’ actuary.  In its reports for the two pension plans as of June 30, 2012, it found an unfunded actuarial accrued liability (“UAAL”) of $829,760,482 for the GRS. Ex. 69 at 3. It found UAAL of $147,216,398 for the PFRS. Ex. 70 at 3.”

Add those two numbers up and you get an UAAL of $976,976,880 which happens to be under $1 billion.  But this number comes from the funds’ own actuary and it is not considered by this judge (and me) as proof of anythng.  Q: What is it then?

A: A smokescreen put forth by a co-opted profession to mask true costs so as to understate contributions for the benefit of the politicians who are their immediate clients and approve their excessive fees.

It is about time anyone counting on these public defined benefit pensions woke up to that reality.

 

 

 

3 responses to this post.

  1. Posted by Javagold on December 7, 2013 at 12:50 am

    If you don’t hold it. You don’t own it. Public takers better learn this fast. Actually everyone better learn it. It is coming.

    Reply

    • Posted by Tough Love on December 8, 2013 at 12:05 am

      Actually even holding/owning the assets may not be good enough.

      At some point, unless a significant share of the unfunded/underfunded but “promised” BENEFITS is reduced …e.g,,Public Sector workers pensions/retiree healthcare, Medicare, Social Security (although the problem is not THAT severe for SS) ……… the Federal Govt will be eying the biggest pot of money out there to take a share … your IRAs.

      Don’t believe it? They’re already doing it in parts of Europe.

      Reply

  2. Posted by Eric on February 2, 2014 at 11:43 am

    Yes, Tough Love , I agree. It is called a “bail in” and was concocted not by some Third World nation, but by the IMF (International Monetary Fund) based in Washington DC.
    Cypress, an EU (European Union) member nation, was the “testing ground”. The action did run into some turbulence with Putin. He scared many of the operatives.
    In the US, IRAs and 401Ks will be replaced with long-term government bonds that no right thinking individual would want. They are about as desirable as spent nuclear fuel rods from Fukishemia. The lies presented will be that we will protect you from a “roller coaster” stock market and give you a guaranteed rate of return on your investment in retirement.
    As Jim Rogers, an investor friend of mine has said on numerous occasions, be very careful.
    Eric

    Reply

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