New tools would help public pensions stay on course: Common Sense and Guts

Alicia Munnell on marketwatch.com proposes a new tool that “could help public pensions stay on course” – another chart

While we can’t solve all problems, my colleagues and I would like to toss a proposal for a new analytic tool into the mix. It is not so much prescriptive, but rather will make clear to the plan sponsor the extent to which the plan is making any funding progress. This tool would highlight, on a historical basis, the specific reasons why the unfunded liability has been growing. Every plan’s actuarial valuation reports the Unfunded Actuarial Accrued Liability (UAAL), the change in the UAAL from the prior year, and some information on the factors that led to the change. The task is to simply combine these annual changes over an extended time period.

The problem is that the numbers for this chart came from exhibits that are already in the actuarial reports.

Obviously Ms. Munnell and her colleagues are looking to highlight the refusal of government officials to make full (or, for some years, any) Annual Required Contributions and feel another exhibit on page 64 of an actuarial report will be more helpful than a newspaper headline.  Under a pension scheme you need to make contributions to pay benefits.  Call this tool COMMON SENSE.

However, what would be helpful is if some of these numbers were explained clearly within the actuarial reports.  For example, in those exhibits from the NJ TRS reports there were decreases in the Unfunded Liability (UAAL) reported due to “assumption changes” ($337,666,242 for 6/30/12 and $404,297,149 for 6/30/13) though there was no mention (that I could find) of any changes in interest funding rate, mortality tables, or other decrement assumptions.  Another tool would be one that explains how these contribution-reducing factors came about…..and why.  For actuaries (in New Jersey anyway) call this tool GUTS.

 

34 responses to this post.

  1. Posted by Tough Love on November 20, 2014 at 12:15 pm

    John, That’s a Class A chart that Ms. Munnell prepared …. a nice development of the UAAL “sources”, but the reader needs to been keen on the column which represents the UAAL Growth due to “contributions” less than those recommended by the actuaries.

    The actuary’s job is to recommend contributions sufficient to fund the pension benefits AS-PROMISED by the Plan formulas and provisions (e.g, young full retirement ages , COLA increases, liberal definitions of “pensionable compensation”, etc..), no matter how generous (often extreme to the point of absurdity) those promises may be. And as I have stated before, “funding” requirements FOLLOWS directly from and in proportion to Plan “generosity” and funding problems (i.e., the inability to find sufficient revenue to make contributions equal to the actuary’s recommendations) is very often a CONSEQUENCE of excessive Plan generosity.

    And truly “solving” this problem requires addressing that excessive “generosity” via material pension reductions for the future service of all CURRENT workers.

    Reply

    • Posted by Anonymous on November 20, 2014 at 6:05 pm

      TL nobody is listening anymore. You merely sound like the teacher in the Charlie Brown cartoons. Its true dude!

      Reply

      • Posted by Tough Love on November 20, 2014 at 6:51 pm

        As one riding this gravy train, you WANT nobody to listen to my comments, because while my comments are fact-based and inclusive of needed changes, my proposals “hurt” your financial future vs the current (grossly excessive pension/benefit) structure in place in NJ today ….. understandable, but irrelevant.

        While I have no idea if any “decision-makers” in a position to shape the future of NJ’s pensions have read any of my many comments (on this blog and elsewhere), perhaps they have, and perhaps they WILL help shape the decisions that MUST be made.

        Reply

        • Posted by Anonymous on November 20, 2014 at 7:17 pm

          Believe me TL merely repeating the same thing over and over becomes so monotonous like a skipping record. Nobody even remembers which record they are listening to after a while. Dont fool yourself. Run for office and put forth your i solutions! Why not you are smarter than they are

          Reply

          • Posted by Tough Love on November 20, 2014 at 7:31 pm

            “Believe you” ……… Really ???

            Most elected officials aren’t “dumb”, but unfortunately (for the Taxpayers) they ARE almost always primarily “self-interested”, usually beholden to the Public Sector Unions because of their need for campaign contribution and election support, and gutless to stand up to the Unions and make the CLEARLY needed (and very material) reductions in the pension accrual rate for the FUTURE service of all CURRENT workers.

      • Posted by yankeesfan on November 21, 2014 at 3:45 pm

        Actually, a LOT of people are listening, and reading, about the pension mess. You can always spot the people who benefit from the status quo: They never want attention drawn to the real issues (read: the math). No. They want to shuffle everyone along, saying, “Nothing to see here folks. Just keep moving along…” But reality, and math, like gravity, can only be defied for so long. Already, the cracks in the ice are getting bigger and bigger, and no amount of rhetoric is going to stop it. It’s just a matter of when, and how bad, not if.

        Reply

  2. The fundamental problem is democracy. At this point I’m not sure it’s even worth while bothering with any actuarial calculuations.

    Reply

  3. Posted by Richard on November 20, 2014 at 1:29 pm

    Last time I checked, fraud was a criminal offense. No one wants to enforce it against public officials. I suppose we would have to build more prisons. I do note that the NRA has had a great deal of success with laws making local government officials personally liable for laws violating state firearms preemption statutes. Such a thing could be done with pensions. Fund what you promise or pay the price, personally.

    Reply

    • Posted by Tough Love on November 20, 2014 at 3:12 pm

      How about INSTEAD OF … “Fund what you promise or pay the price, personally.” ….. we say …”promise more in pensions /benefits than what you would have promised had you NOT accepted Public Sector Union campaign contributions and election support, and pay the price, personally”.
      ————————————-

      I find your comment on the NRA succeeding in making local Gov’t officials personally liable for laws violating state firearms preemption statutes quite interesting. Perhaps the avenues they have taken to do so can be applied to STOP the collusion between our elected officials and the Public Sector Unions (to the detriment of Taxpayers who foot the bills) in granting pensions & benefits FAR in excess of what is necessary (to hire and retain a qualified workforce), just in terms of the cost of, and comparability of pensions/benefits provided to Taxpayers, and the financial sustainability of these promises.

      Reply

  4. I object to the fact that the analysis starts in 2001, after the stock market bubble ended, and therefore assumes the most of the problem is due to below-average returns.

    What about the above average returns from the decade before? Where did they go?

    Moreover, most retroactive pension increases took place before 2001.

    And how did the NJ Teacher’s pension fund underperform plan assumptions every year since 2001? What about the last five years, when stock prices and existing bond value soared as a result of interest rates falling to zero?

    Moreover, didn’t the Christie pension cut just reverse the 2001 pension increase? So how is the cut worth many times the increase?

    Moreover, how is 100 percent of the interest on underfunding blamed on taxpayers, and zero percent on the 2001 increase?

    Finally, why is the New Jersey teacher’s funded, a fund where the taxpayers really do deserve most of the blame, used as the example, and not the NYC teacher’s fund?

    Reply

    • Posted by Tough Love on November 20, 2014 at 4:09 pm

      Quoting ….”Moreover, didn’t the Christie pension cut just reverse the 2001 pension increase?”

      Like almost all of the recent NJ pension changes, the formula cuts apply ONLY to NEW workers (NOT to the FUTURE Service of CURRENT workers)…… and changes ONLY applying to NEW workers are almost financially meaningless.

      Pension changes in the PRIVATE Sector almost always apply to the FUTURE Service of CURRENT workers. What makes PUBLIC Sector workers so special that they deserve a better deal … on the Taxpayers’ Dime ?

      Might our gutless Union-bought-off (Taxpayer-betraying) elected officials be the reason ?

      Reply

      • “Like almost all of the recent NJ pension changes, the formula cuts apply ONLY to NEW workers (NOT to the FUTURE Service of CURRENT workers).”

        I’m pretty sure you are wrong about that. The unions are suing for the very reason you state — higher contributions and a freeze in cost of living increases did apply to current workers and retirees.

        Reply

        • Posted by Tough Love on November 20, 2014 at 6:57 pm

          I included the word “almost” in my above comment because the COLA suspension did impact current workers. As far as I know, that and financially meaningless contribution increases (given the enormous value of their pension promises, 80-90% of the cost of which is the responsibility of the Taxpayers) are the ONLY changes that impacted CURRENT workers.

          The Public Sector Unions will sue over even the most minor givebacks …… they are a CANCER inflicted upon civilized society.

          Reply

  5. Posted by Anonymous on November 20, 2014 at 6:31 pm

    THEY POLITICIANS WERE ALSO GUTLESS WHEN THEY GAVE THE TAXPAYERS 2O YEARS OF HOLIDAY FROM PAYING INTO PENSION SYSTEM. YOU PAID NOTHING TL AND NOW YOU ARE BITCHING

    Reply

    • Posted by Tough Love on November 20, 2014 at 7:04 pm

      It would certainly be interesting to see the results of a workup that showed how NJ’s Taxpayer contributions (and investment earnings thereon) would stack-up (with respect to the existence of unfunded liabilities) if the promised Public Sector pensions were no more generous than those typically granted Private Sector workers by THEIR employers….. usually no more than 3%-5% of pay into a 401K Plan and ZERO towards retiree healthcare costs.

      I’d guess that Taxpayers have indeed paid a fair share of what your pensions SHOULD HAVE BEEN absent the collusion between your Unions and our taxpayer-betraying, vote-selling, contribution-soliciting, self-interested elected officials.

      Reply

  6. Posted by Anonymous on November 20, 2014 at 7:14 pm

    If pensions were less generous, we would still be in a huge hole and for you to think otherwise makes you very very naive! Even less would have been put into the fund and you wouldnt have gotten your tax breaks from Christie Whitman etc. wake up, please wake up. This isnt fantasy land you are never going to be treated fairly , pensions or no pensions, cant you accept that sad but true fact of life. Its politics as usual .

    Reply

  7. Posted by Tough Love on November 20, 2014 at 7:19 pm

    Quoting …. “If pensions were less generous, we would still be in a huge hole and for you to think otherwise makes you very very naive!”

    If you can back up that claim, I’d love to see it.

    I doubt that that would be the case if Public Sector pensions in ALL past years matched Private Sector Plans in the level of Plan “generosity” (for BOTH the formulas AND provisions).

    Reply

    • If you look across the country, if the unions didn’t loot the funds through retroactive increases, as in NY and California, someone else did through underfunding. You have much less generous pension plans in places like Kentucky and Oklahoma deep in the hole. It’s all about Generation Greed.

      Reply

      • Posted by Tough Love on November 21, 2014 at 2:47 pm

        I won’t argue that even in States/Cities with less generous (than average) Public Sector Pensions, underfunding due to a lack of political will to appropriately fund the Plan CAN happen.

        But keep in mind, ALL Public Sector DB pensions are always more generous than Private Sector Plans … and most often by a multiple of 3 or 4 when BOTH the much richer formulas AND much more generous “provisions” (such as very early full/unreduced retirement ages, and COLA increases that are almost unheard of in Private Sector Plans) are properly factored into that calculation.

        But always stay focused on the fact that “funding” requirements FOLLOW from (and in proportion to ) Plan “generosity”. Not being able to fully fund a “generous” Plan is usually NOT due to a lack of political will, but due to the fact that the HUGE sums to do so are simply not available ….. and the ROOT CAUSE of this “funding problem” is directly traceable to the excessive “generosity”.

        “Funding” problems are most often a CONSEQUENCE of that excessive generosity, not a “cause” of the pension mess many States and Cities now find themselves in.

        Reply

  8. Posted by Anonymous on November 21, 2014 at 12:46 am

    Keep on believing what the politicians what you to believe. and you never be any better off, most likely much worse. Forget NJ, pay attention to the federal government. Are you confident what the feds are doing will sustain you for years to come?

    Reply

    • Posted by Tough Love on November 21, 2014 at 12:53 am

      40% of every dollar that the Federal gov’t spends is borrowed. Clearly this cannot continue indefinitely, and may end quite catastrophically ……… just as will (not “may”) NJ’s pension & retiree healthcare promises without VERY VERY material reductions promised CURRENT workers.

      Greed HAS consequence.

      Reply

  9. Posted by Anonymous on November 21, 2014 at 2:10 am

    TL, you are rooting for NJ to go down first, but you may quite surprised when the dollar collapses beforehand, wont you!?

    Reply

    • Posted by Tough Love on November 21, 2014 at 2:39 am

      On the contrary Anon, I am rooting for prosperity for the vast majority of NJ’s “Taxpayers” via lower taxes, or at least to halt the upward march that would be necessary to fund the current (grossly excessive) PUBIC Sector pension/benefit promises.

      You on the other hand represent the very greedy 15% of all NJ’s workers employed in the PUBLIC Sector, who work tirelessly to maintain their grossly excessive pensions & benefits, 80%-90% of the total cost of which is “supposedly”* the responsibility of the Taxpayers.
      ————————————-
      * I said “supposedly”, because the rapidly wising up Taxpayers have no intention of honoring such “promises” made in collusion between your Unions and NJ’s elected officials bought-off with Public Sector Union campaign contributions and election support.

      Reply

      • Posted by yankeesfan on November 21, 2014 at 4:19 pm

        Exactly. Nobody cares when the drinks are flowing and the music’s blaring, but when the party ends, people start looking around and learning. You public sector workers have enjoyed the ignorance and apathy of your neighbors for a long time, and you’ve grown accustomed to it. Now that the party is over, your neighbors are rapidly wising up and realizing that they have been getting ripped off, and they are not going to take it anymore. It’s always amazing to me how stubbornly public workers refuse to accept reality, the same reality their neighbors have had to accept for more than half a decade.

        Reply

  10. Posted by Anonymous on November 21, 2014 at 4:55 am

    Get your head out of the sand and you will see the eminent collapse coming. Everyone will be in the same boat, whether you like it or not. Actually that is what you want, eveyone in the same boat.

    Reply

    • Posted by Tough Love on November 21, 2014 at 9:27 am

      EQUAL Public/Private Sector pensions in comparable jobs would be MUCH fairer than the structure in place today, wherein while rarely earning less in “cash pay”, Public Sector pensions (when considering BOTH the much richer formulas AND much more generous “provisions”) are ROUTINELY 3x-4x greater in value at retirement than those of their Private Sector counterparts.

      You got a problem with EQUAL ?

      Reply

  11. Posted by hondo on November 21, 2014 at 12:32 pm

    njpropertytaxfacts.com Dedicated to disclosing the truth about taxes that support you local fire and emergency medical services in NJ.

    Reply

    • Posted by Tough Love on November 21, 2014 at 1:01 pm

      Hardly unbiased considering that your web-link immediately maps over to the self-promotional Firefighters Union webpage … http://firefighterfactsnj.org/

      Almost ALL incremental tax revenues in NJ (95% per Gov. Christie) will go to nothing OTHER THAN supporting the grossly excessive pensions & benefits granted all of NJ’s Public Sector workers.

      These grossly excessive pensions (AND retiree healthcare benefits that almost nobody in the Private Sector gets any longer) are nothing but a decades-long financial “mugging” of Private Sector taxpayers.

      NJ’s Taxpayers must DEMAND either:

      (a) a hard freeze (zero future growth) of all of NJ’s DB pensions for the future service of all CURRENT workers. The current absurdly excessive DB Plans should be replaced (for future service) with a DC (401K-style) Plan with a Taxpayer %-of-pay “match” of 3%-5% of pay, just like Private Sector Taxpayers typically get from their employers, or

      (b) If (a) above is not possible (after exploring ALL legal avenues to do so) then the pension accrual rate for the future service of all CURRENT Public Sector workers should be reduced by 50% for all non-safety workers and by 66% for all safety workers …… and even AFTER such reductions, they would STILL be greater than the pensions granted 90+% of comparable Private Sector Taxpayers.

      Reply

  12. Posted by Javagold on November 22, 2014 at 12:21 am

    You know what’s gutless. Not sending the REAL bill to taxpayers each quarter. Lets see the public takers do that. They would be lucky to get out of New Jersey alive, after those REAL bills were mailed.

    Reply

    • Posted by Tough Love on November 22, 2014 at 12:28 am

      That’s exactly the problem.

      ALL of the parties with a finger in this pie (the workers, the Union officials, our legislators, management “negotiating” on the Taxpayers’ behalf) work tirelessly to VASTLY understate the true expected cost of the promised pensions, because that’s the ONLY way to keep the promises so extraordinarily generous ….. by hiding what it will ultimately cost taxpayers.

      Without doing so the money that benefits THEM via their own Public Sector pensions, or via campaign contributions from the Unions would end.

      Greed, and self-interest drives the whole lot.

      Reply

      • Posted by Tough Love on November 22, 2014 at 12:58 pm

        And yes Mr. Bury, many Public Sector pension actuaries are complicit as well, by choosing assumptions and methodology to minimize Plan costs (and hence Gov’t entity contributions) to please their employers and keep these lucrative engagements.

        Reply

  13. Posted by George on November 24, 2014 at 10:28 am

    Military has common sense and guts.

    Younger military veterans are angered by budget cuts to their pension benefits

    http://www.washingtonpost.com/business/economy/younger-veterans-outraged-by-budget-cuts-to-their-pension-benefits/2013/12/30/c43cbbec-6f02-11e3-b405-7e360f7e9fd2_story.html

    Reply

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