Christie’s Shenanigans

To look at Christie is to suspect that one is viewing a future national leader.  It may not make much sense, but that does not invalidate the feeling……In the long perspective…[Christie] certainly expects that this pension business will attain no status beyond that of a footnote.

Shenanigans by Peter Christensen; (page 11)

That was 1998 and that Christie flamed out but the points made by Peter Christensen, an actuary working for the NJEA, on the New Jersey pension crisis then are worth revisiting:

Not putting money in the pension funds, however, hurts no one in the short run, and the damage it does cause is significantly deferred, certainly always until after the administration responsible has left office.  The second reason that pension plans are such easy pickings is that the financial status and transactions of the plan are obscured by a haze of actuarial arcana. (page 23)

The police and firemen seem to have a blue-collar, macho confidence that whatever promises the State makes to them the State will deliver on, no matter what reserves have been established in advance for that purpose (page 31)

On June 30, 1994, the Whitman pension reform measures were enacted into law.  Governor Whitman’s approval rating at that time was 78%. (page 47)

Unlike most other states, New Jersey had never anointed its employees’ pensions as a contractual benefit.  Its tradition, in fact, was to steadfastly deny pensions such a status, identifying them instead as “legislative gratuities”.  This patronizing locution, which conjures up the image of a Damon Runyan sport flipping an extra quarter to a shoeshine attendant, nonetheless represented the legal status of New Jersey public employee pensions.  Going at least as far back as the State Supreme Court’s Spina decision in 1964, it had been consistently held that public workers had no contractual right to their pensions and that the Legislature could, at any time, both retroactively and prospectively, alter or renege on its pension promises. (page 59)

Chief among these improvements was the 1987 amendment conferring free health insurance on all teachers retiring with at least 25 years of service.  Prior to 1987, this coverage was accorded only by those local school districts that elected to do so, and who as a result picked up the cost as well. (page 63)

An actuarial report, by its nature, is a deadly soporific. (page 63)

A critical element in ripping-off a pension plan is the certification of an actuary.  As long as the plan sponsor is maintaining a pretense of prudent funding — that is, setting aside enough now to assure the payment of benefits later — an actuary’s blessing is a necessity.  Without formal actuarial approbation, the public will not buy the assertion that a plan is being circumspectly managed. People do not understand the business of actuaries any more than they comprehend the practice of medicine, but only a doctor can give a patient a clean bill of health. (page 65)

Harry Baldwin viewed Buck’s, or more particularly Bob Baus’, support of Chapter 62 as a betrayal of the Teachers’ Plan. Put even less kindly, Baus had sold out.  He had given the Governor’s pension larceny professional cover. He had signed-off on a scheme he knew to be flawed and that imperiled the eventual payment of the promised benefits. He had, in fact, done the Administration’s bidding for the price of keeping the State’s business. (page 66)

I knew that actuaries, like other business consultants, generally find a way if at all possible to come down on the side of those who are paying them. (page 67)

Regrettably, this precautionary parsimony is frequently at odds with the cash flow preferences of the organization maintaing the plan. Actuaries are thus commonly asked, and have thus become experts at, skinnying down contributions at their clients’ behest. The lower outlays are always limited to the range the actuary considers professionally acceptable, but it is very hard to deny a paying client at least some compromise in your standards that redounds to the client’s manifest, and often desperately needed, benefit. (page 68)

If the projected contributions under a sanguine actuarial scenario are wrong, and the contributions rise steadily beyond what was projected, there may well come a time when the plan sponsor – – e.g., the State of New Jersey and its taxpayers — say “Enough! These costs are growing beyond our tolerance and willingness to pay!” At that juncture the actuary’s self-correcting method is abandoned to political reality — and the real cost cutting occurs; i.e., the pensions promised under the plan are in the way of being trimmed. (page 69)

I was sure of only one thing about Whitman and pensions, and that was she didn’t want to pay them. (pages 113-4)

Actuaries, incidentally, do not live for moments like this. Bullfighters maybe, but actuaries no. We like to carefully derive our conclusions, based on a full complement of data, in a milieu of contemplative ease, and then check our results, sleep on them, let the subconscious work with them overnight, and then check them again, before we utter an opinion, which is often hedged with words like “given the persistence of prevailing conditions” or “assuming this, that, and the other thing.” (page 146)

The other unspoken – and indeed unmentionable – aspect of pension debt is that, if it becomes too inconvenient to pay off, it can be reneged upon. (page 174)

 

18 responses to this post.

  1. Posted by skip3house on September 14, 2014 at 7:58 pm

    It has all been said and thought here and elsewhere before today!

    Reply

  2. Posted by Anonymous on September 14, 2014 at 8:30 pm

    I just had a revelation. Even if the reduce public pensions 50 percent and make publics pay a share of health insurance costs, Taxpayers will still have to shell out a ton of money. TL is dreaming, she things her 50 percent solves her problems

    Reply

  3. Posted by hondo on September 14, 2014 at 9:57 pm

    I think whatever happens we will have to pay more for health insurance & take a cut like Detroit.

    Reply

    • Posted by Tough Love on September 14, 2014 at 10:13 pm

      I’m guessing that retirees will be paying a LOT more for healthcare (and getting a lot less for those increased $$$) ……. and your pension cuts will be many times those of Detroit because NJ doesn’t have a Gov’t owned museum with multi-Billions in wolrld-class art that needed to be protected from creditors …. and hence will get no Private donations to shore up your pensions.

      Reply

  4. Posted by Anonymous on September 14, 2014 at 11:55 pm

    The settlement from the hedge and investment companies will refill the pension coffers, 2009 Carlyle Group settlement remedies apply to the complaint filed by the AFL-CIO. Ask Mr. Grady, he worked for the CG,he knows this is real talk.

    Reply

  5. Posted by hondo on September 14, 2014 at 11:56 pm

    Wishfully think but, a lot of these retirees don’t pay in to social security but, i bet LT you have SS and a retirement saving! Rich keep getting richer! Don’t spit in the wind!

    Reply

    • Posted by Tough Love on September 15, 2014 at 12:01 am

      Quoting …. “a lot of these (Public Sector) retirees don’t pay in to social security”

      And they BENEFIT by not being in SS, because for most, it’s a lousy return on investment.

      And the 6.2% the they WOULD HAVE been contributing (from their own net paycheck) but don’t, SHOULD HAVE been saved and invested every year.

      If they didn’t, that’s THEIR problem, not the Taxpayers’ problem (or obligation).

      Reply

  6. Posted by Anonymous on September 15, 2014 at 9:45 am

    Let’s say that the NJ Investment Council and the Asst. Director of Pensions and Benefits serve as the pension board for NJABP. The renewal for the supplemental state sponsored DROP with Prudential comes up, just why didn’t these state pension program representative negotiate institutional, retirement class or premium class investment schemes which are less risky and cheaper. The State representatives for the NJABP which includes DROP, instead allows Prudential to put these billions in high fee risky retail class investments. Who wouldn’t find this action questionable and worthy of a discussion by investigators with those involved. Why would a state investment board and pension division not negotiate the very best deal available on behalf of DROP participants, unless there is something shady going on. NJ employees deserve better. Prudential is a vendor with the State for employee life insurance and the NJABP defined contribution plan for eligible higher education employees, there are corporate discounts for important long-term government customers. Let the investigation begin starting with Mr Grady and Ms Culliton.

    Reply

  7. “The other unspoken – and indeed unmentionable – aspect of pension debt is that, if it becomes too inconvenient to pay off, it can be reneged upon.”

    Not in New York City. No wonder instead of underfunding by taxpayers, we have damage mostly due to retroactive pension increases for unionized public employees (and for the state legislators who passed them).

    The lies are similar in each case. There is the cost of the deal — the new, higher level of benefits. The cost of the retroactivity of the deal, with no money set aside to pay for it and therefore no investment returns available to fund it. And the cost of the lie — the additional years in which more benefits are paid out even as no more money is put in, because the deal “cost nothing” or “saved money.”

    Reply

  8. Posted by Javagold on September 15, 2014 at 8:00 pm

    I will gladly pay you Tuesday, for a hamburger TODAY.

    Reply

  9. Posted by Anonymous on September 16, 2014 at 9:21 am

    Hey John, do you agree that whatever happens, once the state is able to start get the pension payments under control they will make absolute no payment or a payment far less than needed and start the going into debt almost immediately again. And the courts will uphold this procedure yet again!

    Reply

    • Posted by Tough Love on September 16, 2014 at 9:33 am

      It’s a “math problem. They will NEVER be able ….”to start get the pension payments under control” ….. as the tax increases necessary to do so (assuming that means meeting full pension promises) would be unacceptable to ALL parties (except the Plan members of course).

      The promised benefits MUST be reduced …. MATERIALLY reduced.

      Reply

      • Posted by Anonymous on September 16, 2014 at 10:12 am

        TL, that annoying kid in who always interrupted everyone and spoke regardless of whether she was being spoken to or not. You know kinda like that really annoying kid in Polar Express! LMAO!

        Reply

        • Posted by Tough Love on September 16, 2014 at 12:18 pm

          “Annoying” is when you are forced via a collusion between the Public Sector Unions and your elected officials to assume responsibility for 80%-90% of the total cost of Public Sector pensions MOST OFTEN 3x-4x greater in value at retirement than that of a comparably situated Private Sector worker, and OFTEN 100% of the cost of employer-sponsored retiree healthcare coverage that almost NOBODY in the Private Sector gets any longer.

          What YOUR problem with EQUAL, but NOT “more” ?

          Reply

    • Posted by Tough Love on September 16, 2014 at 9:41 am

      Another actuary, Mary Pat Campbell, passed along and critiqued Mr. Bury’s comments on NJ’s Plans earlier this year ….

      http://stump.marypat.org/article/17/welcome-to-the-public-pension-watch-hurray-for-new-jerseyIt's a “math problem.

      Quoting from that article:

      “New Jersey pensions are going under, even after the multiple rounds of “reform”. The amount of money to make them whole is not going to come from NJ taxpayers, and there will not be a federal bailout. Mainly because the feds can’t bail them out. The hole is just too big.”

      Reply

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