ALEC Has It At $6 Trillion*

The American Legislative Exchange Council (ALEC) came out with a report this week based on reviewing the latest available actuarial valuations of more than 280 state-administered pension plans and adjusting the discount rate from an average of about 7.37% to a ‘riskless’ rate of of 2.142%.

I disagree with the methodology since I believe the funded status of a particular plan should be considered when adjusting the wishful discount rates that the plan actuaries who politicians hire are ‘encouraged’ to use.  That is, a plan closer to full funding should be able to use a rate closer to that 7.37% while a pure pay-go plan (Puerto Rico) should use a rate closer to 0% since that is about what they are getting for the few days any money stays in the trust.

Nevertheless there were some nice charts ranking states by Funded Ratio, Unfunded Liabilities, and Unfunded Liabilities Per Capita.  However, I did not see where they had the underlying data so, based on those charts, I decided to extract some other numbers.

Here is the spreadsheet sorted by state and totaled which yields:

  • Total Accrued Liabilities: $9.08 trillion
  • Total Assets: $3.06 trillion
  • Unfunded Liabilities: $6.02 trillion
  • Average Funded Ratio: 33.7%
  • Average Unfunded Per Capita: $18,676
  • US Population: 322.4 million

.

.

.

* Basically slight rewording with link and spreadsheet updates from a blog last year.

38 responses to this post.

  1. Posted by NJ2AZ on December 14, 2017 at 10:32 am

    $6T? oh, is that all?

    Reply

  2. Posted by Tough Love on December 14, 2017 at 10:50 am

    John,

    I understand (and agree) that we shouldn’t assume any earnings on assets that don’t exist, but I don’t agree with your apparent belief that (in today’s investment environment) a Plan that is even 100% funded should be allowed to discount Plan liabilities using that 7.37% rate.

    Doing so effectively makes the Taxpayers a guarantor that that rate will be achieved. When Public Sector DB pension Plans are designed/implemented, the Taxpayers are sold a bill-of-goods as to how much the Plan will cost them. Conceptually, (in this case) the “cost” told to the Taxpayers is that tied to actually earning 7.37%. But there is considerable “risk” that earnings will come in lower …. with the bill for any shortfall handed to the taxpayers. “Risk” has a calculable cost …… which is the basis underlying the options market ….. that is being ignored when the 7.37% is used.

    Looking at it another way, if Private Sector Pension Plans are (essentially) forced by the US Gov’t to value their Plans using a discount rate of about 3.5% ………. when such Plans (overall) have funding ratios now over 85% under a much MORE conservative valuation ……. why do you feel it is reasonable or appropriate for Public Sector Plans (even when 100% funded …. under their VERY liberal valuation basis) to use 7.37%?

    Reply

  3. Posted by Anonymous on December 14, 2017 at 2:38 pm

    And what’s the # when you include all of the Fed pensions?

    Reply

    • Posted by Tough Love on December 14, 2017 at 2:47 pm

      Will knowing that lessen the impact of the now ludicrously excessive NJ Public Sector DB Pensions on NJ’s property and State & Local Income taxes ?

      Reply

      • Posted by Anonymous on December 14, 2017 at 3:23 pm

        You do pay Federal taxes don’t you or are you one of those self interested beneficiaries of the Good Old Pals (GOP) tax cut for the rich at the expense of Undermining Social Advancement.(USA)?

        Reply

        • Posted by Tough Love on December 14, 2017 at 3:44 pm

          Yes I do, but to repeat …………… how will knowing the funding level of Federal pensions lessen the impact of the now ludicrously excessive NJ Public Sector DB Pensions on NJ’s property and State & Local Income taxes ?

          We BOTH know the answer ………… NOTHING.

          You’re just trying to divert attention away from this Blog’s focus ….. NJ’s ludicrously excessive and massively underfunded Public Sector pensions (AND benefits).

          Reply

      • Posted by PS Drone on December 14, 2017 at 4:12 pm

        He keeps asking the same stupid question, hoping to divert attention from the sad state of NJ pensions to the similarly sad pay as you go status of federal and military pensions. He keeps forgetting that the Federal Govt. can print money to pay its bills; the state cannot.

        Reply

        • Posted by Tough Love on December 14, 2017 at 4:39 pm

          The readers understand….. he does it because assuredly he/she (or a family member) is now or expects to be receiving one of these unnecessary, unjust, unfair to taxpayers, and grossly excessive pensions …. and doesn’t want it derailed.

          Reply

          • Posted by Anonymous on December 14, 2017 at 7:17 pm

            It reminds me of the retired military MD who was educated by the taxpayers and is receiving a taxpayer funded pension BUT hypocritically decries any State or Local tax increases. All of this while conducting a thriving private practice. Boy if that isn’t self interest on steroids!

  4. Posted by Anonymous on December 14, 2017 at 3:34 pm

    It’s interesting a study and blog commentary reflecting national data, including US population, neglects to include ALL public sector DBPs. I guess it depends on what you choose to make an issue out of versus what you choose to keep the closet.

    Reply

    • Posted by Tough Love on December 14, 2017 at 3:46 pm

      Federal DB pensions and SS are peanuts in generosity compared to State & Local Plans.

      Reply

      • Posted by Anonymous on December 14, 2017 at 3:56 pm

        You left out one key reference, their unfunded liabilities! And leave out the but they can just print more money…..

        Reply

        • Posted by Tough Love on December 14, 2017 at 4:00 pm

          The ludicrously excessive GENEROSITY of NJ’s pensions (and all other State & Local pensions) is the ROOT CAUSE of the under-funding.

          ALL of these pensions should be frozen for the future service of all CURRENT workers …. and that is exactly what has been proposed by the NJ Pension & Benefits Study Commission.

          Reply

  5. Posted by SMH on December 14, 2017 at 5:41 pm

    ” all other State & Local pensions”

    Slow down, Hombre. You’re painting with a broad brush again.

    SMH

    Reply

    • Posted by Anonymous on December 14, 2017 at 5:56 pm

      In this case the painter knew what they were painting before taking their first brush stroke.

      Reply

    • Posted by Tough Love on December 14, 2017 at 6:03 pm

      You’re correct………… I believe a few jurisdictions (e.g., Sandy Springs Georgia) only grant modest DC Plans comparable to what Private Sector workers typically get.

      No need to freeze these………..

      So what’s your guess….. perhaps 1 in a 1000 Public Sector retirement Plans are DC ?

      Reply

      • Posted by SMH on December 14, 2017 at 7:36 pm

        My guess is the same as always.

        1) For about of one third of all public workers, pensions and health benefits bring their total compensation higher than equivalent private sector workers. For the next third, their lower wages are about offset by their higher benefits and pensions. They are “roughly equal”. For the highest third, their allegedly “ludicrously excessive” pensions don’t even come close to compensating for their lower wages.

        2) Generosity is not the ROOT CAUSE of the under-funding.

        C) “ludicrously excessive” is ludicrous… excessively ludicrous.

        “In fact, is there really anyone out there who thinks that as a society we pay our bankers and lawyers too little and our janitors too much? Maybe there’s something to be said in favor of the civil service pay scale after all.”

        Clayton Sinyai

        SMH

        Reply

        • Posted by Tough Love on December 14, 2017 at 8:27 pm

          But we BOTH know that the distribution of Public/Private Sector compensation differentials by income level ISN’T what financially impacts taxpayers. It’s the NET differential from all workers taken together that financially impacts Taxpayers

          Which gets us back to the AEI Study’s 23*%-of-pay PUBLIC Sector Total Compensation (wages + pensions + benefits) ADVANTAGE in BOTH our homes States ………….CA and NJ.

          Yup 23% EXTRA pay …. in EVERY YEAR of one’s career. Adds up to a VERY tidy sum over time.

          * 33% to 34% if the MUCH greater value of Public Sector job security is properly factored in (per Bigg’s AEI Study), and assuredly even greater if the AEI Study had not EXCLUDED the highest-paid/highest-pensioned group among Public Sector workers, that being SAFETY workers.
          **********************************

          And grossly excessive “generosity” is indeed the ROOT CAUSE of the pension mess. The lacking of fully funding is simply the CONSEQUENCE of that real ROOT CAUSE. A VERY generous Plan is VERY costly, and hence VERY difficult to fully fund.

          Reply

          • “But we BOTH know that the distribution of Public/Private Sector compensation differentials by income level ISN’T what financially impacts taxpayers. It’s the NET differential from all workers taken together that financially impacts Taxpayers”

            No, we don’t BOTH know that. It doesn’t make a lick of sense. In Biggs’ data, a HS grad level worker makes about the same wage as a similar private worker. With P&B, he makes $10,000 a year more. I can see where you might call that exorbitant, VERY generous, and financially impacting the taxpayers. But at the highest level, even with P&B, the doctors and lawyers are making an average of 19% less. That’s over $30,000 year LESS than equivalent private workers.*
            The only “financial impact to Taxpayers” is a huge savings. And logically, between those two extremes, is a large cohort whose higher pensions roughly counterbalance lower wages. That’s market rate. They are logically not generous. Not excessive, not “grossly excessive generosity” and certainly not the “ROOT CAUSE” of underfunding.

            Which gets us back to the AEI Study. To the extent that it is accurate or relevant, it describes several states that are “market rate” compensation (NOT excessive)’which are severely underfunded, and one (New York) which has some of the highest compensation, yet is fully funded.

            Your theory is all wet. The ROOT CAUSE of underfunding is not using more conservative assumptions, strongly compounded by the Greatest Recession, and, in many cases…

            DON’T PAY THE BILLS, THE DEBT GETS LARGER

            *Taxpayers, what would YOU do with $30,000 a year LESS compensation?

            SMH

          • Posted by Tough Love on December 14, 2017 at 10:35 pm

            Quoting SMH………..

            “No, we don’t BOTH know that. It doesn’t make a lick of sense. ”

            No wonder why your work-responsibilities included changing light bulbs.

            I’ll concede that in comparing Public to Private Sector Total Compensation, some make more, some make the same, and some make less, but the CORRECT (and ONLY) way to determine the financial impact upon taxpayers is to add up the differentials for ALL Public Sector workers regardless of what income group into which they fall.

            PERIOD !
            *********************************

            Everything else you stated is irrelevant and clearly included to confuse the readers by attempting to make such a determination appear more complicated than it really is.

          • How does it confuse the reader to say that a lawyer making $30,000 a year LESS than he would in the private sector… is not the ROOT CAUSE of pension underfunding?

          • Posted by Tough Love on December 14, 2017 at 11:41 pm

            No SMH, It confuses the readers when you zero in on ONE particular occupation rather than adding the compensation differentials from ALL occupations and ALL Public Sector workers together……………. because as I have repeatedly (and accurately) stated, THAT is what financially impacts the Taxpayers (and includes the contributing impact of the compensation differential from your lawyer).

          • Posted by SMH on December 15, 2017 at 6:53 am

            “the compensation differential from your lawyer” is negative. .

            The doctor, the lawyer, the CPA, the MBA, the PhD, etc. ad nauseum. They are not ” adding to the compensation differentials”. They are subtracting. They are not a burden upon the taxpayer. They are a bargain.

            And the next group lower on the continuum, likewise are not a burden either. Their benefits and pensions, even though they may be “twice the value upon retirement”, are by definition not excessive, let alone “ludicrously excessive”. They are only compensating for the lower wages. Their total compensation is roughly equal to their private sector peers.

            The “burden upon the taxpayer”, as you call it, comes from those lower skilled, lower educated workers who earn similar wages, but much better benefits than similarly situated private workers. “ALL occupations and ALL Public Sector workers together” do not negatively impact the taxpayer; only those who are genuinely paid more than “market value”.

            As Juvenal says…
            ” you are just wrong about the comparison of public sector and private sector total compensation (except at the level which requires no education–sorry for giving them benefits other than Medi-Cal).”

            I don’t think that “confuses the readers.”

          • Posted by Tough Love on December 15, 2017 at 12:27 pm

            SMH, It’s VERY simple, no matter how many times to try to prove otherwise …..

            No SMH, It confuses the readers when you zero in on ONE particular occupation rather than adding the compensation differentials from ALL occupations and ALL Public Sector workers together……………. because as I have repeatedly (and accurately) stated, THAT is

            What financially impacts the Taxpayers …………… and includes the contributing impact of compensation differentials (+ or -) from the lawyer, PHD, Truck driver, light bulb changer, janitor, and ALL others …………….. is the compensation differentials from ALL occupations and ALL Public Sector workers together.

  6. Posted by Anonymous on December 14, 2017 at 5:56 pm

    Is ALEC one of the Baldwin Bros?

    Reply

  7. Posted by SMH on December 15, 2017 at 8:51 am

    John Bury:
    “I disagree with the methodology since I believe the funded status of a particular plan should be considered when adjusting the wishful discount rates that the plan actuaries who politicians hire are ‘encouraged’ to use.”

    David Crane wrote a piece called “A Tale Of Two Public Pension Plans” (Nov. 2, Medium.com) comparing CalPERS and the Ontario Teachers’ Pension Plan

    “Same recession, same stock market, different outcomes.”

    One big difference… discount rates (CalPERS “— 50 percent higher! — ”)

    But there was a third pension plan… New York State; same recession, same stock market, pension benefits well above the national average. Discount rate… 7%, 98% funded in 2015, according to PEW.

    https://www.google.com/amp/s/calpensions.com/2017/05/01/new-york-pension-systems-outperform-california/amp/

    ………
    The difference seems to be that California law requires the ARC to be fully paid (CalPERS plenary authority).
    New York State requires the plan to be fully funded. It’s not just semantics… it is a major distinction, even if they have the same discount rates.

    Reply

    • Posted by Tough Love on December 15, 2017 at 12:20 pm

      With Public Sector pensions ROUTINELY being 3, 4, even 6 times (for Safety-workers in Plans with COLA-increases) greater in value upon retirement than those of their Private Sector counterparts, AND with the workers own contributions (including all the investment return thereon) rarely paying for more than 10% to 20% of the total cost of their ludicrously generous pensions, a very well-funded plan simply means that the Public-Sector-Union/Elected-Official Cabal has be very successful in SUCKERING the Taxpayers to contribute to these Plans many times MORE than what THEY get in retirement benefits from their own employers.

      And NJ’s Taxpayers, even with poorly funded Plans, have ALREADY contributed MORE THAN enough to fully fund 100% of the cost of a pension Plans EQUAL TO that typically granted it’s Private Sector Taxpayers. NJ’s Public Sector workers deserve EQUAL, but no more, and NJ’s Taxpayers should resist being suckered to pay more.

      Reply

  8. Posted by SMH on December 15, 2017 at 1:25 pm

    Déjà pu

    1) “pensions ROUTINELY being 3, 4, even 6 times…” irrelevant

    2) “rarely paying for more than 10% to 20% of the total cost…” also irrelevant. Whether it comes out of their wages, or is entirely covered by the employer, it is still part of total compensation. 100% of wages and benefits come from the Taxpayers. As it should be.

    3) “NJ’s Taxpayers, even with poorly funded Plans, have ALREADY contributed MORE THAN enough to fully fund 100% of the cost of a pension Plans EQUAL TO that typically granted it’s Private Sector Taxpayers.”… I would give a months pension to be a fly on the wall when you try to sell that to the Judge.

    Three up, three down. AKA, The pension pundit hat trick.

    Where there is life, there is hope.

    Reply

    • Posted by Tough Love on December 15, 2017 at 1:33 pm

      Intelligent ?

      You mean like the attempts at “logic” coming from a light bulb changer ?

      I wonder how many PRIVATE Sector “light bulb changers” get DB pensions from THEIR employers.

      Reply

  9. Posted by T B on December 15, 2017 at 3:54 pm

    Move everyone to Social Security

    Here’s my solution:

    https://drive.google.com/file/d/0B90sU3A85q46OE9BZHJFSWEzbGM/view?usp=drivesdk

    Thoughts?

    Reply

  10. Posted by SMH on December 15, 2017 at 4:01 pm

    Beaucoup

    As I stated in another post. Our daughter’s father in law has a very healthy pension and retiree healthcare.
    My mother-in-law has been drawing a pension and healthcare as a beneficiary for over thirty years.

    International Brotherhood of Electrical Workers. Damn unions!

    Reply

    • Posted by Tough Love on December 15, 2017 at 8:06 pm

      The vast majority of Private Sector Taxpayers …. you know, the ones called upon to PAY FOR the now ludicrously excessive Public Sector pension & benefits ….. are not in Unions* and typically get DC Plans rarely worth more than 1/4 as much as Public Sector DB pensions, and are rarely earning ANY employer-subsidized retiree healthcare today.

      Public Sector workers “deserve” no better …… at least not on the Taxpayers’ dime.

      *******************

      And so as to not let you hoodwink the readers, MOST Private Sector Unions plans “suck”. At one time the IBEW did negotiate generous benefits for it’s members. I doubt that they remain so generous today.

      Today the IBEW negotiates with individual employers and it’s not a cake-walk. They’re now in the 10-th month of a strike against COMCAST.

      Reply

  11. Posted by Earth on December 15, 2017 at 9:42 pm

    Earth to Mr. Love,

    Stop me if you’ve heard this before…

    “You cannot compare pensions outside the context of total compensation.”

    Wages and pensions are changing in both sectors constantly. There is really no definitive comparison. Your opinion and invective are counterproductive.

    Don’t let that slow you down. You have the right be wrong.

    Reply

  12. Posted by Tough Love on December 15, 2017 at 9:47 pm

    SM-Whatever (aka ………. SMD, SMA, SMH, S.Moderation Douglas, S, Moderation Honesty, S. Moderation Anonymous, Earth, Stephen Douglas, Anonymous, and assuredly a few others):

    Yes YOU (below) have said that before. Wrong then, wrong now.

    Reply

  13. Posted by Anonymous on December 16, 2017 at 12:33 am

    That never gets old.

    Reply

  14. […] The American Legislative Exchange Council (ALEC) came out with a report last month based on their review of the latest available actuarial valuations of more than 280 state-administered pension plans and adjusting the discount rate from an average of about 7.37% to a ‘riskless’ rate of of 2.142%. Unfunded liabilities came in at $6 trillion. […]

    Reply

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