Public Plans Data Takeaway: Bad Actuarial Assumptions

The numbers collected by the Public Plans Data people have the helpful features of an interactive data browser that goes back to 2001 from which we can compare the worst funded plans in 2001 when the total combined funded ratio was 102.02% for the 161 plans in the survey to the latest data (a combination of 2015 and 2016) for 170 plans with a total funded ratio of 74.33%.

There have been several sham explanations for this drop (market crashes, missed contributions) but this fifteen-year period has also seen extraordinary earnings growth (especially in alternative investments) with several public retirement systems actually cutting benefits and most governments putting in their full required contributions.

The real reason…..

Actuarial assumptions for public plans are selected with one goal in mind – to generate the lowest contribution amounts possible. As those assumptions are not realized the funded levels drop despite the fact that these funding methods are supposed to develop contributions that consist of an annual cost to pay for benefits accruing during the year plus an amortization amount to pay off any past shortfall.

Putting the PPD data into a spreadsheet (with several workbooks) tells a sadder story for public plans in general, and New Jersey’s in particular.

 

49 responses to this post.

  1. Posted by Anonymous on July 7, 2017 at 12:49 pm

    From an article with some history of NJ pension Plans:

    “Even after the stock market bubble burst in 2001, Gov. Donald Di Francesco increased pension payments by 9% (retroactively to retirees).”

    Yes even AFTER our self-interested Elected Official were aware of the market crash, they went ahead and increased NJ’s Public Sector pension by 9% (retroactively).

    That single …… completely unjustifiable (retroactively applied) increase …. is responsible for over $20 Billion of current liabilities.
    *************************

    Roll it back !

    Reply

    • Posted by Anonymous on July 7, 2017 at 1:33 pm

      8.3% but I guess that equates to 9% rounded down in the private sector? The $20B is that another rounded down guesstimate or is there a real valid calculation available!

      Reply

      • Posted by Anonymous on July 7, 2017 at 1:58 pm

        Actually, it went from a per-year-of-service formula factor of 1/60=1.66666% to 1/55=1.81818% which is a 9.09% increase.

        Reply

        • Posted by Anonymous on July 7, 2017 at 2:05 pm

          Thanks for the clarification, and what about the unfunded liability increase? Maybe this modification can be included in future reforms.

          Reply

          • Posted by Anonymous on July 7, 2017 at 2:17 pm

            NJ needs a Constitutional change which reverses the 1997 changes that locked in pensions (even for future service) once they are “vested” after 5 years.

            There is ZERO (yes ZERO) justification for greater Public Sector pension Plan protections from FUTURE Service reductions than those granted Private Sector workers …. and Private Sector workers have ZERO such protection.

          • Posted by Anonymous on July 7, 2017 at 2:28 pm

            It would have to be part of a comprehensive reform package that included health care and funding but I think it’s workable.

          • Posted by Anonymous on July 7, 2017 at 2:50 pm

            Allowing reduction in FUTURE Service pension accruals is “needed” because the FIRST step in digging yourself out of a deep financial hole is to STOP DIGGING, and every day that NJ continues to grant additional Public Sector pension accruals (using the current grossly excessive formulas & provisions), we dig that hole a little bit DEEPER.

    • Posted by PS Drone on July 7, 2017 at 9:06 pm

      If I recall Di Francesco’s comments when asked about the rationale for the ridiculous retroactive increase – to encourage “good employees” to remain in public service and not leave for “greener pastures”. What a crock then and now. Can you imagine LEO and Fire employees looking for “greener pastures”? That type of warped, self-serving logic is one of the many things I love about the public sector.

      The fiscal crash and burn cannot come soon enough for me.

      Reply

      • Posted by Anonymous on July 7, 2017 at 9:13 pm

        As long as 90% of the financial “pain” falls upon the worker/retirees, and NOT NJ’s Taxpayers.

        Reply

      • Posted by S Moderation Fact Checker on July 7, 2017 at 11:42 pm

        No, 90% of the pain will not fall on workers and retirees.

        “It is your concern when your neighbor’s wall is on fire.”

        – Horace

        http://www.mauldineconomics.com/frontlinethoughts/angst-in-america-part-5-the-crisis-we-cant-muddle-through

        “It’s going to hurt just about everyone.”

        Reply

        • Posted by Anonymous on July 8, 2017 at 12:28 am

          SMD,

          I figured that you, a retired CA Public Sector worker and pension “denier” would eventually show up. Always rides in when the heats up.

          By the way, in case you missed my recent response to your claiming to be the “fact-checker”, I’ll repeat it:
          *********************************************************
          SMD, Here’s a fact you should check…………….

          Whether it was 50% or 3% (as you claim was the extent of YOUR retroactive pension increase from CA’s SB400 and similar Local increases) or something in between, in legal terminology what “consideration” did you provide in exchange for that RETROACTIVELY APPLIED (to your PAST Service) pension increase?

          If nothing ………. and it WAS nothing (unless you had a time-machine and went back in time and worked a little longer or a little harder) ……….. then it was simply an unjust THEFT of Private Sector Taxpayer wealth.

          Reply

  2. Posted by S Moderation Anonymous on July 8, 2017 at 1:21 am

    If you believe that is illegal, tell it to the judge. (It isnt.)

    If you think it is immoral, that is your opinion.

    As I said, a 3% salary increase in my last year would yield the same increase as the pension formula increase, and it would increase it for all past service.

    There are other ways to calculate pensions other than FAS. Each has its own advantages and disadvantages. It is legal, that’s a fact.

    Nice rant, though. You have all the talking points down pat.

    Reply

    • Posted by Anonymous on July 8, 2017 at 2:04 am

      Do I think CA’s SB400 and similar Local RETROACTIVE pension increases (as well as the 9.09% RETROACTIVE pension increase in NJ in 2001) is immoral?

      Yes.

      Do I think they were ….under impartial evaluation …. illegal?

      Probably.

      Do I think that the judges (who would rule on such challenges) who participate in the SAME Plans would rule against them (negatively impacting their own pensions)?

      No.

      Are any RETROACTIVELY-applied (to PAST service) pension increases just or fair to Taxpayers … or anything OTHER-THAN a THEFT of Private Sector Taxpayer wealth?

      No.

      Would I shed a tear if Public Sector workers (including those already retired) ultimately suffered pension reductions that brought their pensions ALL THE WAY down to what their Private Sector counterparts typically get from their employers …… meaning 75+% reductions for Safety workers and 60% reductions for non-Safety workers?

      No.
      *******************************

      One thing you should keep in mind. While most of NJ’s Public Sector Sector workers are in State Plans (including NJ’s Local Teachers) and the State of NJ would likely have to become insolvent before these workers suffer material pension reductions, the structure is quite different in your home State of CA.

      In CA, most Plans (while “administered” through CalPERS) are City/County-sponsored Plans which CAN file for Bankruptcy, and MANY of which are well on that path right now ….thanks to the insatiable GREED of their Public Sector Unions/Workers and the self-interest of their Elected Officials.

      Reply

  3. Posted by Anonymous on July 8, 2017 at 2:19 am

    SMD, Just wanted to bring to your attention a recent Forbes article by Jeffrey Dorfman, a professor of economics at The University of Georgia. While it focuses on Illinois problems, a growing number of States are not far behind. Here’s the link to the full article:

    https://www.forbes.com/sites/jeffreydorfman/2017/06/05/illinois-credit-downgrade-proves-public-pensions-should-be-outlawed/#632fe9187d4a

    And here is critical comment that pension “deniers” (such as yourself) refuse to acknowledge. Do this sound familiar? I’ve been saying the SAME thing for years……….
    *******************************************************************
    ” Yet the lessons of Illinois show that this problem has only one solution: outlaw defined benefit public pension plans.

    The basic process by which states get in such severe financial trouble is well established. Unions get protection from any future diminishing of pension obligations enshrined into state law or, ideally, the state constitution. Then public sector unions give state politicians big campaign contributions in exchange for large, irresponsible future pension benefits. The state legislature then underfunds those pensions, keeping the taxpayers from realizing the full cost of the promised pensions and eliminating any near term pain from the pension promises. Unions don’t object to the underfunding because they know the law protects their pensions no matter how bad the situation gets. Eventually, you are Illinois, with a pension shortfall equal to roughly eighteen months of total state spending.”

    Reply

  4. Posted by S Moderation Anonymous on July 8, 2017 at 4:36 am

    T-nonymous…

    “Do this sound familiar? I’ve been saying the SAME thing for years……….”

    Yes, it do sound familiar…

    Posted by Anonymous(T) on June 6, 2017 at 10:41 am

    “…this problem has only one solution: outlaw defined benefit public pension plans.”

    Sez Jeffrey Dorfman, a professor of economics at The University of Georgia.
    …………………………….
    Sez Anthony Randazzo and Leonard Gilroy, managing directors of Reason Foundation’s Pension Integrity Project (www.reason.org)…

    “Retirement Security Requires Fully Funding Public Pension Plans”

    Forbes, APR 6, 2017

    Reply

    • Posted by Anonymous on July 8, 2017 at 7:33 am

      Oh Forbes what the heck to their contributors know; comments only relevant when DBP are demonized!

      Interesting Red v Blue analysis of unfunded liabilities might prove astonishing results to Rebs posting here.

      So Lil Kim is gonna sell the beach house. Guess that money will go into hubby’s, projected to cash flow out first, JRS – it’s Murphy’s Law!

      Reply

    • Posted by Anonymous on July 8, 2017 at 10:49 am

      Re-reading it after posting, I noticed the “do” instead of “does” and laughed …… something one might expect from say …… a light-bulb-changer.

      Reply

      • Posted by Anonymous on July 8, 2017 at 1:18 pm

        Actually reread again, it says to no do even if does is correct grammar. It’s amazing when you can’t question the underlying meaning of the post you resort to critiquing the spelling and grammar. Someone so anal could have only been a failed grade school public educator – keep up the good work and don’t forget to pay you’re taxes. Yes that’s right you’re instead of your…..

        Reply

        • Posted by S Moderation Anonymous on July 8, 2017 at 2:58 pm

          “Actually reread again, it says to no do even if does is correct grammar.”

          ??What do that mean??

          “… when you can’t question the underlying meaning of the post you resort to critiquing the spelling and grammar.”

          Maybe you need to reread it, …again… You have an expert from Forbes. I have an expert from Forbes, diametrically opposed.

          “critiquing the spelling and grammar.” is just a bonus.

          Reply

      • Posted by Anonymous on July 8, 2017 at 1:19 pm

        “DO THE NAME RUBY BEGONIA STRIKE A FAMILIAR NOTE?”

        Reply

  5. Posted by S Moderation Anonymous on July 8, 2017 at 12:43 pm

    I also laughed!

    Do that mean perhaps you were a light-bulb-changer in a previous life?
    Or perhaps a closet light-bulb-changer still?

    Reply

  6. Posted by Anonymous on July 8, 2017 at 1:53 pm

    Totally off topic but I ordered a pizza delivery for lunch and the guy pulled up in a Mercedes C300 with the latest IPhone, of course. Anything wrong with this picture?

    Reply

  7. Posted by skip3house on July 8, 2017 at 2:42 pm

    Using ‘Anonymous’ as your handle makes it quicker for me,…. to follow the many replies, as I skip over those I cannot recognize….all Anon. (but how to tell ‘Tough Love’,…who I used to follow the train of thought’?
    Even SMD is losing me……

    Reply

  8. Posted by Anonymous on July 8, 2017 at 10:26 pm

    A great example of why DB pension should be outlawed in the Public Sector.

    The unjustly ADDED $40K COLA-increased pension has a “value” of about $600K …. just handed to him (and stolen from the Taxpayers’ pockets) because he’s buddies with the County Executive.

    If you want to do that under a DC plan you need to hand him a CHECK for $600K on the spot, and THAT wont happen.

    http://www.stltoday.com/news/local/govt-and-politics/mcculloch-is-biggest-beneficiary-of-st-louis-county-pension-changes/article_ebce5824-4b6d-55e2-9998-f26b53e2a852.amp.html

    Reply

    • Posted by Anonymous on July 9, 2017 at 9:34 am

      Undisclosed union sources have stated their willingness to negotiate P&B reforms with Murphy IF COLAs are reinstated. The tentative talks include a sliding scale COLA tied to base allowance pension. As would the implementation of ALL retiree premium share for ‘gold type’ health coverage prior to Medicare eligibility. Upon turning 65 a stipend for purchasing a medigap plan would be provided. Sticking point is a new hybrid plan for non vested and new hire employees. Preliminary estimates suggest a $75B reduction in unfunded liabilities over 40 years but this includes the hybrid plan. Union and Murphy sources declined comment but Murphy reiterated he would not sell the beach house to fund pensions!

      Reply

      • Posted by Anonymous on July 9, 2017 at 12:31 pm

        Quoting …..

        “Undisclosed union sources have stated their willingness to negotiate P&B reforms with Murphy IF COLAs are reinstated. ”

        Now THAT’s amusing……….

        The “value” of COLAs as a % of the total pension are close to 25%, 30% and 35% for retirement at ages 65, 60, and 55 respectively.

        Sure give them THAT and they might offer something with a “value” of 5%-10% back in exchange.

        —————————————————————–
        No, what NJ desperately needs (to have ANY chance of avoiding service insolvency combined with massive tax/fee increases) is a NJ Law/Constitutional change to FREEZE the DB pensions for the FUTURE service of all CURRENT workers.

        Reply

      • Posted by Anonymous on July 9, 2017 at 12:31 pm

        And what’s with this offer “Gold” retiree healthcare for pre-Medicare age Public Sector retirees, when even modestly-subsidized Employer-sponsored retiree healthcare in the Private Sector is becoming rarer and rarer?

        EQUAL, but NOT better…… on the Taxpayer’s dime.

        Reply

        • Posted by Anonymous on July 9, 2017 at 1:11 pm

          Don’t shoot the messenger, bang bang oh he got me…..

          Reply

          • Posted by Anonymous on July 9, 2017 at 1:52 pm

            “If you (clearly a Public Sector workers on the receiving end of these grossly excessive promises) don’t like us exposing this collusion …. and the need to reduce these pension promises, that your problem.”

          • Posted by Anonymous on July 9, 2017 at 2:14 pm

            No wait I was wearing the latest and greatest bullet proof gear – ear plugs…..
            I’m not receiving nor giving, heck what you think it is Christmas in July?

          • Posted by Anonymous on July 9, 2017 at 2:18 pm

            Quoting ‘that your problem’, clearly you’re one of the private sector’s best and brightest! Public education has its benefits, sorry you missed out!

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