Not Adding Up

As far as the dollar amount goes it’s not earthshaking ($40 million) but what it says about innumeracy in the media and how unexamined mistakes morph into dodgy facts upon which flawed policies are based provides insight into why problems like unfunded pensions are never destined to be solved.

Yahoo Finance picked up that:

The governor said he will slash two large payments to the state’s $2.43 billion pension system as a means to cover unexpected revenue shortfalls in his budget, reports The Star Ledger.

PolitickerNJ also had the $2.43 billion figure which is now a fact in the public forum yet the initial Star Ledger story explains:

A payment to the pension fund scheduled to be made before June 30 will be reduced — from $1.6 billion to $696 million — via executive order, Christie said.  The governor also intends to shrink a $2.25 billion payment that was set for the next fiscal year to $681 million, but said he will seek the Democratic-controlled Legislature’s approval for that move.

A story in Bloomberg has that first contribution at $1.58 instead of $1.6 billion which is closer to the truth but going with the Star Ledger numbers:

6/14: $1,600 million – $696 million = $904 million

6/15: $2,250 million – $681 million = $1,569 million

$904 million + $1,569 million = $2.473 billion

It looks like that Star Ledger story had a typo and nobody cared to check.  Not a big deal in this case since it’s a phony contribution number to begin with but surely someone should be questioning more important numbers and assertions instead on unthinkingly accepting them:

No! These payments when added to the employees’ own contributions will not come close to covering the accruals for active participants since the actuaries who put out this canard of sufficiency, even if every one of their numbers do add up, developed those numbers at the direction of politicians who made it clear what they wanted to see.  That would be obvious if anyone cared (or knew enough) to pose the right questions.

12 responses to this post.

  1. Posted by skip3house on May 24, 2014 at 5:08 pm

    The late Dunstan McNichol………


  2. Posted by Anonymous on May 24, 2014 at 5:28 pm

    Chris Christie, promising to break promises until the cows come home. But he has the knack of doing it with such great certainty! I am still hearing his words when he promised to make the payments and saying that the law will insure that he makes the payments! Oh boy! Never worry about the law, it cant be enforced.


  3. Posted by JM on May 24, 2014 at 5:32 pm

    Not to worry Judge Hurd probably got the call already. Law? what Law?


  4. Posted by Javagold on May 24, 2014 at 5:38 pm

    2 + 2 = 5

    Possession is 9/10 of the Law and the public Employees are going to learn that the hard way


  5. Posted by Anonymous on May 25, 2014 at 6:03 pm

    Hahahaha, if the systems were only 2.43 billion in liabilities, it would easy as pie. And 2.43 billion and assets and we have a term for that, pay-as-you-go.


  6. Posted by Anonymous on May 26, 2014 at 2:49 pm

    Is anyone covering the decrease from the 7/7s ADC? Come to think of it, has there been any publicly available information on how they are planning to handle GASB 67&68? The development of the long term rate of return? Liabilities with entry age? Will the auditors accept a 0% COLA assumption given the court cases? Using the net fiduciary position instead of their current asset methodology?


    • Posted by Anonymous on May 28, 2014 at 2:34 am

      John, have I missed your analysis of 67/68 and/or coverage of what the official actuaries are going to do?


  7. Posted by Anonymous on May 26, 2014 at 6:27 pm

    Anyone focusing on the erroneous assumption in the rate of pay increase for public employees. It is assumed at 4.7% for most of the actuarial assumption, which is about twice the rate of actual pay increase. This is a very significant factor that is consistently overlooked.


    • Posted by Anonymous on May 26, 2014 at 6:53 pm

      And there’s a select and ultimate salary increase for most, if not all the funds. Have I overlooked it, or is there no explanation given for why these are the best forward looking assumptions? And what’s been the gain/loss related to salary growth?


      • Posted by Anonymous on May 26, 2014 at 8:30 pm

        So, quick look at just one fund and I’m seeing consistent losses. And even looked at the 2008-2011 experience study and no justification given for the select and ultimate. Note that the inflation assumption is not select and ultimate, nor is the (completely unsubstantiated) investment return assumption.


    • Posted by Tough Love on May 26, 2014 at 7:02 pm

      When “step”/seniority increases as well as periodic promotions are included with regular annual/merit increase, an average total annual pay-increase assumption of 4.7% may be quite realistic.


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