We got a new study of the funded status of some public pension plans. This one with a $1.9 trillion Scare-Number. Though, this year, with a twist:
Starting with our 2016 edition of the Milliman Public Pension Funding Study, we have shifted our focus away from the accrued liability figures that are used to determine a plan’s funding requirements; rather, our study is now based on the Total Pension Liability figures used for financial reporting under Governmental Accounting Standards Board Statements No. 67 and 68 (GASB 67/68), which apply to governmental entities.
Government Accounting Standards Board (GASB) Statement No. 68 supersedes financial reporting requirements for the State and local governmental employers under GASB Statements No. 27 and No. 50 as they relate to pensions that are provided through the State-administered retirement system. This new statement establishes standards for measuring and recognizing on each participating public employers’ financial statements their allocated share of the plan’s net pension liability (NPL), deferred inflows and outflows, and pension expense. Each participating public employer must begin disclosing the information required under GASB 68 in their financial statements for reporting periods beginning after June 15, 2014.
which matches the valuation numbers using that 4.13% discount rate:
But here’s where it gets weird. That 4.13% for the NJTPAF is the lowest in the Milliman study (even lower than the 4.29% for the Puerto Rico Government Employees Retirement System which they had with a Funded Ratio of 0.4%). Most of the interest rates in the column of the study labeled ‘GASB 68 Discount Rate’ are in the 7% to 8% range with Milliman explaining:
We report the plan sponsor’s own assessment of how well funded a plan is. We also recalibrate the liability for each plan based on our independent assessment of the expected real return on each plan’s investments. This process enables us to independently determine funded status without reflecting any bias or lag that may exist in the plan sponsor’s own return expectations…..The difference between the average sponsor-reported assumption of 7.50% and our independently determined assumption [is] 6.99%.
- Liabilities: $217 billion
- Assets: $81.3 billion
- Unfunded Liabilities: $135.7 billion
- Annual Payouts: $9.8 billion
- Employer Deposits: $2.6 billion
- Member Deposits: $1.96 billion
- Funded Ratio: 37.48%