Accountants/Actuaries As Seers

MR. CHRISTENSEN: Oh, yes. I guess I want to begin by thanking you for hearing me. I can’t imagine what you have done, Senator, to deserve to have to listen to two actuaries in one afternoon.

SENATOR INVERSO: It is my retribution for being a CPA. I said this before, and I think Bob grimaced the last time. You know, what is an actuary? It is a CPA without personality. (laughter)

page 57 of a May 20, 1996 public hearing on New Jersey’s pension system.

At the time I was reading that passage for insight into what actuaries were predicting back then my accountant side was quoted in a story on the COLA ruling:


Over time, pension increases from cost of living increases can make up a substantial portion of a pension fund’s overall responsibility. John Bury, an accountant who blogs about pensions, said that over the last two years, COLA payouts would have increased New Jersey’s obligations by about $500 million.

Of course I would never be insulted by being thought an accountant as the several hundred I am acquainted with are all of above-average intelligence and diligence….except in this instance.

Accountants are not predictors of the future.  They follow rules set by authorities to help their clients both keep as much of their money as possible and stay out of jail.

Actuaries are all about predicting the future.  They are guessing how long you will live, how much you will make on your investments, and what you will have to contribute to achieve your desired pension goal.

The confusion these days is natural  as public plan actuaries (at least those who get hired) are all about following prescribed rules (often enacted as laws) set by clients who want to stay in office.  Those actuaries are not making predictions independently but following orders implicitly.

But getting back to that 1996 hearing:

I guess the concern we have– Looking at the TPAF chart that the NJEA put up, you see that the contribution of the State rises dramatically between 1995 and the year 2014. It is projected there under Buck’s study that nearly an eightfold increase is going to take place. That leads us to worry that some future Legislature, when they have to find, instead of $50 million to put into that fund, they have to find $450 million or $470 million, that they are going to say, “We can’t do it.” That leads, then, to some future Legislature potentially saying, “Let’s cut the benefits.” That is a problem.

Somebody works 23 years, thinks he or she is going to retire in two years, think they have 23 sixtieths of their salary that they are going to go out with, and then suddenly some future Legislature says, “We are not going to put $450 million into this fund. We are going to change the benefit level. We are only going to give you, instead of 1 sixtieth, l 120th. That is a problem. That is why we think it is critical that this Legislature guarantee the benefits that employees have earned.

Having said that, it is the advice I get from our attorneys that the way to do that is to declare, in State legislation, that employees have a contractual entitlement to the benefits they have earned, and that those benefits cannot be impaired.

The legal theory on this is that the Federal Constitution states that — and I am paraphrasing here, because I have not looked at it recently– It basically states that the states of the United States cannot pass laws that impair the obligations of contracts. In order for an employee to have the security, the State has to create this contractual relationship. It is not a labor relations contract. It is a contract between the people of the State and the people who work for the State, or any of its subdivisions. (pages 68 – 69)

This from neither an actuary nor an accountant but John Loos, legislative/political coordinator for the CWA, though when the judges in the Berg cases quoted this passage as justification for ruling COLAs as contractually guaranteed hey presumed him to be an actuary which could account for their decision.
.

27 responses to this post.

  1. Posted by Tough Love on June 29, 2014 at 7:33 pm

    It would indeed be nice if all of the promises made to Public Sector workers re their pensions and benefits could be paid in full and on time, but (noting that money DOESN’T grow on trees) how do we reconcile doing so with 3 facts:

    (1) the cost of doing so requires massive increases to both individual and business taxes, massive additional cuts to services, and/or empolyEE pension contribution increases in the order of 20+% of pay (and even more for safety worker pensions).
    (2) considering BOTH the VERY rich pension “formulas” AND the VERY generous pension “provisions”, those pension promises (as they now stand) are always AT LEAST 2x greater in value at retirement than those of comparable Private Sector workers retiring at the SAME age, with the SAME years of service, and with the SAME pay. And that “AT LEAST 2x”, is MOST OFTEN 3x-4x, and for safety workers, TYPICALLY 4x-6x greater,
    (3) CLEARLY, the granting of the current pensions and benefits (of extraordinary richness as described in #2 above) by our elected officials (past and present) were GREATLY influenced by Public Sector Union campaign contributions and election support. So much so, that in any other venue, they would assuredly be considered bribe giving & accepting.

    Reply

  2. Posted by Anonymous on June 29, 2014 at 8:37 pm

    Now that it appears cutting pensions is not a viable way of reducing the debt of pensions, perhaps the state can work on repaying 18 years of shorting the funds. I anticipate that a judge will next rule that the state has to include the pension payment for next year in the budget for next year. This is as it should be, the state has elected to pay later–and the bill is due–time to pay up. Opinions about whether the pensions were too rich are insignificant as a contract exists.

    Reply

    • Posted by bpaterson on July 3, 2014 at 4:43 pm

      some possible suggestions are to cut the salaries of the govt workers by the same amount and put that money in the pension fund, or link the entire pension funding formula directly to the wealthy residents to get it off the backs of the middle and lower classes that cant afford to pay for their own much less someone else’s.

      Reply

  3. Posted by Rich on June 30, 2014 at 1:28 am

    The choice is not to raise any tax but a word our elected officials don’t have in their lexicon….CUT! We don’t have a revenue problem. We have a SPENDING problem!

    Reply

  4. Posted by Anonymous on June 30, 2014 at 7:58 am

    I don’t understand how service not yet earned is considered a contract/vested right. I also dont understand how municipalties already struggling with loss of tax revenues due to private companies leaving, lower tax assessments and pending foreclosures will be able to maintain services as most likely aid for towns and education will be cut to make up for the pension payments that may come due.

    Reply

    • Posted by Tough Love on June 30, 2014 at 10:23 am

      Quoting …”I don’t understand how service not yet earned is considered a contract/vested right.”

      Because the people who write protections like that into regulations & laws and adjudicate challenges to their legality/constitutionality (the the OLS staff, legislators, the judges, etc.) all participant in the same Gov’t DB Plans and act with self-interest., enriching themselves at the expense of Private Sector Taxpayers for whom FUTURE Service pension accruals are SPECIFICALLY NOT protected from reduction or complete elimination (via Gov’t regulations such as ERISA) .

      And self-interest (greed) is also the driving reason for the extraordinary generosity of public Sector Plan, always MULTIPLES more generous than their Private Sector counterparts.

      And while the run-of-the-mill Public Sector worker had no direct hand in designing such grossly excessive pensions or their protection from reduction, THEY are indeed the financial beneficiaries of this back-door deal-making and collusion which has so screwed Private Sector Taxpayers …. so THAT’s where the Taxpayers must look to right this wrong, by reneging on that 50+% share of these “promises” that would not have been made in the absence of that collusion …. and a good estimate of what the Gov’t worker pensions & benefits would so have been is what Private Sector Taxpayer get from their employers.

      Taxpayers … refuse to fund any pensions & benefits greater than what YOU get !

      Reply

      • Posted by Anonymous on June 30, 2014 at 12:10 pm

        I’m sure your jealous rage and demand to “taxpayers” to refuse to fund has made a impression on the 4 or 5 anti-public employees who post here with you.

        That’ll surely upset the apple cart……apparently you did not see or have ignored the NJ.com poll in which almost 77% of respondents believe the COLA payments should be paid.:

        http://www.nj.com/politics/index.ssf/2014/06/poll_do_retired_public_workers_in_nj_have_a_right_to_cost-of-living_adjustments.html

        So….clearly you and your sycophantic cabal of envious public employee haters are in the minority.

        Reply

        • Posted by Tough Love on June 30, 2014 at 12:18 pm

          I’m sure it solicited outrage by the “takers” such as yourself ….thinking, the NERVE, challenging what we were”promised” (no matter how excessive, unjust, and unaffordable).

          If reducing your pensions is EVER put up for a Taxpayer vote, it will pass with a HUGE majority.

          Reply

        • Posted by bpaterson on July 3, 2014 at 4:51 pm

          anon 6/3-/2-14 12:10pm-you may be right, most of the participants of posting on this forum may be govt employees. The others maybe from out of state following the status of the NJ state pension failure. or that small “cabal” as you put it that valiantly stands up against the insults from the govt employees to state their disdain of the workings of the pension system in a david v golialth analogy

          But as JB1 can attest, there are certainly a lot more readers than posters but unsure how they stand, if not just to be informed by JB1’s postulations and prognostications.

          Reply

  5. Posted by truthnolie on June 30, 2014 at 12:19 pm

    As you could probably tell from the well thought out and informative, dead on writing style, the above reply was mine (was not signed in).

    Reply

    • Posted by Tough Love on June 30, 2014 at 12:21 pm

      “dead on writing style” ? ….What a hoot.

      Go look in the mirror and kiss yourself !

      Reply

      • Posted by truthnolie on June 30, 2014 at 1:05 pm

        Well at least you didn’t disagree that it was well thought out and informative.

        By the way……I don’t have to worry about kissing myself since politicians soon will be looking for support and doing a lot of that to people like me and my union for votes (although the kind of kissing they’ll be doing you can’t normally see in a mirror).

        Reply

  6. Posted by Anonymous on June 30, 2014 at 2:05 pm

    This may sound silly but aren’t there less and less private tax payers and less and less small businesses at least in NJ? and don’t we already have the highest property taxes, highest business taxes, fees, tolls, etc. I guess I am not clear on where the additional monies will come from…..

    @truthnolie–you sound immature. Stick to the facts and try to present your opinions and thoughts in a productive manner. Obviously TL gets to you we all know that by now but try to present productive solutions so that everyone ends up okay in the end.

    Reply

    • Posted by truthnolie on June 30, 2014 at 10:04 pm

      “Obviously TL gets to you….”

      HAHAHA……If you’d been paying any kind of attention over numerous postings/comments, you’d see it’s the other way around…..The fact that I can retire at a very early age (by 50 @ 70% pension with lifetime benefits) eats at her more than anything imaginable. That she continues to comment & respond with the same old tired out rage filled outbursts is comical to me yet she can’t help herself…..it’s kind of like a cat toying with a mouse.

      Immature????…..I respond in kind….if you’ve seen my responses to “normal” , level headed commenters you’d see that but when faced with someone who calls PE’s “pigs at the trough”, etc. I can also trade wits……not hard to do actually – easy battling wits with someone who is coming in unarmed.

      Reply

      • Posted by bpaterson on July 3, 2014 at 5:11 pm

        nolie, from your posts we can assume its more arrogance than immaturity, right.

        As to the anon’s query as to whether less and less private taxpayers, that may not be true. There are charts depicting the number of workers in public and private sector, can’t access it right now. its on the DOL site. Roughly the % number of public sector v the private sector was increasing in the last 15 years, But in the middle of last decade it became a larger trending increase. The recession from 2008 to 2013 roughly stemmed the public sector tide but it is on the increase again and the % if you “average” it out over the last 10 years is considered flat, but that is average.

        As to small business there is probably a chart for that also, unsure the status of that industry.

        What we are also seeing is the quality of the private sector job payscale that is degrading meaning the private sector taxpayer has a larger stress burden to pay the taxes.

        Your final question about where the money will come from for the game is this: The govt bedrock is based on laws, statutes and even its armed forces and is guaranteed to be the first to prevail above all others. (Think air force one, the calling out of the local army reserves if necessary and the underground bunkers under the Washington dc buildings for our govt officials.) The politicians at this present time see no major resistance or revolution brewing so therefore they are still safe. And safe means they can keep on raising taxes knowing that the pain is still bearable by the public “as a whole”. The individual if he/she fails has govt welfare programs to fall back on and these programs are not at the bursting point. Also as to property taxes, if the individual fails to keep up the payments, the govt can just seize the house and sell it off to recoup the back taxes. The focus on the govt is not for the public but appears to be for self preservation since supposedly the govt is “for the people, by the people, of the people”. Somehow the system became corrupted to only appear that way.

        As long as there is not rioting in the streets, it is a failsafe system in place. To summarize: private sector are losers, public sector are winners. BTW: Happy independence day.

        Reply

        • Posted by Tough Love on July 4, 2014 at 10:57 pm

          Quoting … “To summarize: private sector are losers, public sector are winners. ”

          That’s just the way truthnolie wants to keep it !

          But wen(the Taxpayers footing the bill) are determined to change that.

          Reply

  7. Posted by Anonymous on July 1, 2014 at 8:16 am

    @truthnolie, but once you sink to that level, you have lost the discussion. I’m in my mid 50s and semi-retired, choose to keep a few accounts b/c I like what I do so not everyone on here is jealous or anti-public workers. Alos have a 2nd home in FL so that eventually will become my permanent address for tax purposes. However, changes do need to occur so for the sake of productive conversation what would you recommend cutting to help offset the insolvency of our beloved state? Yes, you worked, yes you were promised, now there is no money. Doesn’t help to blame this one and that one from 30 years ago as the problem is what it is today. So, what is your recommendation that would be fair and equal to all of NJ residents?

    Reply

    • Posted by Tough Love on July 1, 2014 at 8:41 am

      truthnolie, some suggested facts that you should consider in responding to the above comment.

      (1) Assuming that COLAs are reinstated in NJ, YOUR pension (retiring on what I’ll guess to be a $125K-$140K salary) is just about equivalent to the employer-sponsored retirement package of a Private Sector worker (retiring at the SAME age & with the SAME service years) earning $400k-$500K.

      (2) While you will likely get FREE family healthcare until Medicare eligible (and then supplemental coverage and Medicare premium reimbursement thereafter) the Private Sector retiree will likely get no employer-sponsored subsidy at all. .This alone gives YOU roughly a lifetime $300K-$400K compensation “advantage”.

      So, what is your recommendation that would be fair and equal to all of NJ residents?

      Please don’t suggest SMALL givebacks, think BIG givebacks that might lead to YOUR “Total Compensation” being very close to those that pay the taxes that pay your salary, your benefits, and pay for all but the 10% or so of the total cost of your extraordinarily generous pension paid-for via your own contributions (including all the investment earnings thereon).

      Reply

      • Posted by truthnolie on July 1, 2014 at 12:47 pm

        @ Anonymous:

        You don’t say whether you’re a retired public worker or will be getting a pension but if you are, you’ve incurred the wrath of most of the posters here as most are anti-public employee/pension. Making matters worse is your plan to leave the state and move to FL……the PE haters here see that as adding insult to injury and think that you are a “scammer” by leaving NJ to save taxes thereby taking and not giving back.

        I’ve posted before that the many things that can be done but I’ll repeat some: privatize/sell off some public properties & holdings, raise gas, millionaire’s, sales taxes (to 8% like NY & tax clothing sales), stop increasing welfare/aid for the more kids they have…this just results in those on welfare/aid producing more children to increase the amount they get, LEGALIZE & TAX marijuana sales like other states are doing (whether you agree or not it will happen one day, just like alcohol was once prohibited), cut the amount of tax breaks given to corporations in this state, etc., etc.

        May surprise some but I am for capping sick time payouts for PE’s and going after double pensioners (many of whom are high level political patrons NOT the everyday retiree) and disability pensioners who are not deserving of same.

        Also & MOST importantly, merge jurisdictions and consolidate services…..this alone would result in a substantial cost savings immediately – there is absolutely no reason for every town (and sometimes each town in a combined township) to have a mayor, business administrator, dep. admin., police chief, dep. police chief, school principal, board of ed, town council, recreation dept., DPW, etc.

        @ TL:

        “So, what is your recommendation that would be fair and equal to all of NJ residents?”

        Apparently you think there will ever be a point where everyone can be equally compensated & no one has an advantage over anyone else. Wishful thinking on your part but in life that’s not how it works. What you’re talking about sounds like a communist ideology. There was a time many years ago when taking a police/fire job was looked down upon and laughed at for the low pay….I know guys whose salary was 10K in the early 80’s. I don’t remember anyone in the private sector who was making much more than that pushing for PE’s then to get better pay or take up their cause then. The private sector was more than happy to treat them as their servants and now that things have changed want to play the “fairness card”.

        Reply

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