Pensions-The whole mishmash in 497 words!

This is dedicated to commenters like TL for TL and skip3house.  Intelligent questions and discussion are always welcome.

skip3house- I just reviewed nine NJ State Pension Annual Reports.  I got tired after nine years.  If you pick up any one of these, are you comfortable reading such reports?  If you know two and two is four you are smart enough to read these.  One key is you must be willing to read the entire report, summaries can be misconstrued.

Suppose a man works for 30 years and desires a pension.  The sum of his and his employer’s contributions will not cover his expected retirement.  Contributions must be invested and earn a minimum level of interest.  Many public pensions will have a random rate with no relevance, often in the seven percent range.  Often the actual earned interest rate is much less.  If a municipality lowers the target assumed rate they may need to make a cash contribution to the fund to make up the difference.  These are complex issues.

Here is what I have learned from studying the NJ pension reports.  For 2016 the pension paid $17.3 billion in benefits while new additions (including investment income) was $11.3 billion.  Based on a single year this fund is in trouble, but what of three, five, and eight year trends?  The three-year average is a six percent increase in benefits paid and a twelve percent decrease in new additions (new money into the fund), a net fund decrease of eighteen and a half percent.  The five-year average was a decrease of about two percent in additions and an increase of more than six percent in benefits growth.  The fund lost about eight percent overall.  I will not quote the eight-year average, too bad to describe.

This fund is unstable and unsafe.  The four years between 2013 and 2016 saw two and a half billion addition to the pension fund but no mention of where it came from.  It is possible this came from cuts in other NJ services, we do not know.  We have no information on the number of retirees vs new members, so a detailed analysis is not possible.

Do we let this fail?  I think not.  I know that with reforms and new cash these can be returned to a healthy footing.  I hope you hear when I say reforms are part of my work, I mean new capital, not loans, and reforms.

The Federal Reserve made mistakes with Monetary Policy which allowed for our recent depression.  The pension crisis is too big for any local or state to solve.  Remember, the Fed will sell about $4.5 trillion in securities.  The proceeds then go to the Treasury.  I say let’s tell Congress to use this money to “Restore our Retirement”.  Congress has a fully funded pension. Why should they have one and you not?

Thank you for your questions and comments and please keep them coming.  Write or call any time.

Tim Alexander
Triune
805-502-4943
tim@triunegfs.com

30 responses to this post.

  1. Posted by Tough Love on December 8, 2017 at 11:04 pm

    Information on NJ’s Public Sector pension Plans is READILY available online. Here’s one of MANY easily available sources:

    https://ballotpedia.org/Public_pensions_in_New_Jersey

    And FWIW, the 2016 fiscal year total pension payouts from ALL of NJ’s State and Local Plans was $10.4 Billion, not $17.3 Billion.

    Reply

  2. Posted by Triune on December 9, 2017 at 9:20 am

    Good AM hardamor-
    a few differences between us.
    A) I am handsome,
    B) I am literate.
    As an example, please try reading (or have read) the STATE OF NEW JERSEY DIVISION OF PENSIONS AND BENEFITS Financial Statements and Supplementary Schedules June 30, 2016 (With Independent Auditors’ Report Thereon).
    May I direct your attention to the table on page six titled; “Summary of Changes in Fiduciary Net Position Pension Trust and Other Postemployment Benefit Plans”
    The second sub-heading is Deductions, and the first line item is “Benefits”. For the fiscal year ending 2016, the amount is $17,270,398,926. I rounded to this to $17.3 billion.
    Observing your math is as flawed as your thinking, I wish I was in retail and could give you change. You would never know what was correct.
    You are a truly remarkable creature, one that should be studied in a zoo. With one lungful of air you scream that all in public pensions should be punished. In the next you misquote facts to defend the same. Wow! If I tried to change gears in my car as fast as you change sides, I would destroy the tranny. Wow! You gravitate to false news faster than Paddington to marmalade!
    Tim Alexander
    Triune
    805-402-4943
    PS-it is flattering to have my own personal troll. May I ask what bridge you live under?

    Reply

    • Posted by Anonymous on December 9, 2017 at 11:04 am

      Good day Tim, I’m curious to know if you’ve had an opportunity to review NJ’s P&B Commission recommendations? Understanding there’s usually two parts to any financial equation, inflows and outflows. What’s your opinion on these reforms IF they include a dedicate inflow to satisfy the accrued liability.

      Reply

      • Hi, I will begin reading in a bit. I am in a Starbucks with a very large window looking out on palm trees and Ventura blvd. What a blessing to sit, relax, watch the city of Angels awake, and realize I am given one more day. What will this day bring? We can tackle any problem, but not until the cappuccino is gone. I will be happy to get bak to ya.

        Reply

    • Posted by Tough Love on December 9, 2017 at 11:53 am

      Tim,

      If you werren’t such a pompous ass …… and really UNDERSTOOD what you were talking about …… would have realized (because it was obvious) that YOUR figure of $17.3 Billion was for BOTH Pension payouts and OPEB (essentially retiree healthcare).

      Did I misread your original post where you stated….

      ” For 2016 the pension paid $17.3 billion in benefits “

      Reply

  3. Posted by Mike on December 9, 2017 at 9:27 am

    So…you believe that taxpayers, by way of the Federal Reserve printing money, should bail out NJ pensions. I just don’t see that this makes sense, although I can certainly see why NJ teachers and state workers would want somebody – anybody – to swoop down and save the day.

    Recall that in the financial crisis that started around 2007, the Fed did not bail out bondholders or homeowners, only banks. The parallel here would be that the Fed would let NJ bondholders and pensioners fend for themselves, while possibly making well secured, low interest loans to the State, to help pay for current salaries. And to provide even this modest help, the Fed would need for a sharply divided Congress to modify the Fed’s charter – not likely.

    I agree that a crash and burn of NJ pensions would be terrible, but it is still avoidable. For example, the final report of the Pension & Benefit Study Commission shows one path forward.

    Reply

    • Posted by Anonymous on December 9, 2017 at 10:58 am

      But banks in turn bailed out homeowners via mortgage modifications, the whole truth not just facts that support your narrow minded predetermined conclusions!

      Reply

    • Posted by Tough Love on December 9, 2017 at 12:54 pm

      Mike,

      I agree with you that the Fed bailing out NJ’s (or any other State or Local) Public Sector pensions makes little sense. ………. and we have good company in actuary Mary Pat Campbell, someone who I do consider as having “expertise” (unlike Tim A,.). She briefly referenced Tim’s post (under Burypension) here:

      http://stump.marypat.org/article/871/rumors-of-pension-bailouts-meps-and-public-pensions

      under the sub-caption…………

      “DIFFERENT BAILOUT IDEA: DRAIN THE TREASURY”

      which I’m guessing summarizes her thoughts on Tim’s ideas.

      Reply

      • Posted by Anonymous on December 9, 2017 at 2:29 pm

        And I’m sure there are other ‘experts’ in their field that on some level would support Tim’s assertions.

        Reply

        • Posted by Tough Love on December 9, 2017 at 3:20 pm

          What “assertions” …… other than an unjustified “bailout” ?

          Reply

        • Posted by stanley on December 10, 2017 at 12:45 pm

          “I’m sure there are other ‘experts’ in their field that on some level would support Tim’s assertions.”
          If they are involved (have face at pension trough) maybe. Any honest expert in this field recognizes a super giant size tar baby when they see one. And even in the really troubled states how many of those who are making do with no defined pension benefit would support a bailout?

          Reply

          • Posted by Anonymous on December 10, 2017 at 7:08 pm

            I don’t know why don’t you ask the Fed’s pensions, including Military supported by taxpayers & printing press – now bring on your self interested BS exceptions! Need a bib b/c your face looks a little dirty!

        • Posted by Mike on December 10, 2017 at 3:32 pm

          Actually, I don’t know of any political, finance, or pension experts who support Tim’s suggestion that Federal Reserve (or US Treasury) bail out any or all state & local pension plans. The nearest thing I know about, which is close in effect if not in rationale, would be nationwide single payer health care. It might free up local money now spent on really, really expensive health plan coverage, to let the money go to pensions.

          But enough of my no doubt limited viewpoint. What other experts can you point to who support a federal bailout of some or all state & local pension plans?

          Reply

          • Thank you for acknowledging my work as new. Look for my two part posting in the next few days.
            Tim Alexander
            Triune
            805-402-4943
            tim@triunegfs.com

          • Posted by Tough Love on December 10, 2017 at 5:48 pm

            ????????

          • Posted by Mike on December 10, 2017 at 7:11 pm

            Triune – Come on. I gather that you want to be taken seriously, and yet you engage in rhetorical nonsense like this. You know that the first word that comes to my head when I think about your post is certainly not “new.”

            You face an uphill battle to get your position taken seriously. Take the time to actually be serious. I’ll read your next post.

          • Posted by Anonymous on December 11, 2017 at 9:36 am

            Right Mike and the Fed’s didn’t bailout homeowners during the housing crisis – just financial institutions which in turn wrote down principal via mortgage modifications. Well definitely take your word on things, not.

    • Posted by Patrick Whalin on December 9, 2017 at 9:10 pm

      My first thought is why not? The federal funds rate is 1%, guaranteed. Why not let NJ borrow $100B at this low rate and refinance our debt? That loan, coupled with more realistic expectations of say 3% would certainly result in solvency. NJ could pay back the feds at 1% for the next 50 years. Meanwhile, reform in the guise of 401 K’s and cash-balance plans would be invoked. Eliminate the DB plans and match at 3%. Health benefits reduced from platinum to Gold-plus for current retirees and all workers. Contribution rates increase to 10% from employees with a max of 3% from employers).

      Eliminate the SALT to a max of $5k and increase copays to a minimum of $5K. Keep thinking!

      Reply

      • Posted by Tough Love on December 9, 2017 at 9:47 pm

        Partick, Your above suggestion is certainly an improvement over one you suggested in a 10/23/17 comment on Burypensions, which started with:

        “As a recently retried PW I certainly have a biased opinion on the issue. A more reasonable fix might be; anyone currently retired or who retire within the next 365 days (time to plan) will not be effected in any way …………….. ”
        **************************************

        And FWIW, the Fed loaning PSWs money at an undermarket rate of 1% for 50 years is just another form of “bailout”……. no more justifiable than any OTHER form of bailout.

        And as the New Jersey Pension and Health Benefit Study Commission proposed ….. freeze ALL of NJ’s DB Plans for the future service of current employees and materially reduce active AND retiree healthcare benefits and subsidies.

        Reply

      • Good evening Patrick. Thank you for your comments. You raise an interesting point.
        First, remember that when banks borrow from the Fed, it is short term, often overnight. Second these borrowings are collateralized, and at the Fed Discount window. I have a two part writing about to be published here, and I discuss this.
        Finally, if the pensions are in the red, they cannot repay any loan, be it at a low rate or not. What is needed is new capital, and reforms.
        I hope you will read my next two posts, I would value your opinion.
        Thank you again for your comments. Feel free to call or write any time.
        Tim Alexander
        Triune
        805-402-4943
        tim@triunegfs.com

        Reply

  4. Posted by George on December 9, 2017 at 10:31 am

    “The four years between 2013 and 2016 saw two and a half billion addition to the pension fund but no mention of where it came from. It is possible this came from cuts in other NJ services, we do not know. We have no information on the number of retirees vs new members, so a detailed analysis is not possible.”

    You can email them and they will probably answer your question reasonably promptly.

    Reply

  5. Posted by George on December 9, 2017 at 10:42 am

    The Federal Reserve made mistakes with Monetary Policy which allowed for our recent depression. The pension crisis is too big for any local or state to solve. Remember, the Fed will sell about $4.5 trillion in securities. The proceeds then go to the Treasury. I say let’s tell Congress to use this money to “Restore our Retirement”. Congress has a fully funded pension. Why should they have one and you not?

    “The Federal Reserve made mistakes with Monetary Policy”

    The Fed never makes mistakes it makes policy. Policy usually benefits some and hurts others, but it is not what in the private sector would be called a mistake. Using the Bolshevik Who-Whom type thinking.

    https://en.wikipedia.org/wiki/Who,_whom%3F

    If you think of all US policy after 2001 as being part of the ‘forever war’, then I think Fed policy was effective as war time financing without raising taxes. What alternative would you suggest?

    “Is the Congressional pension fully funded?”

    Is it CSRS? I thought CSRS was pay as you go, but maybe I am wrong.
    https://en.wikipedia.org/wiki/Congressional_pension

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: