Pensions-Economics and Pigs with Lipstick?

Good morning.  The other day was perfect.  At noon it was mid 60’s.  There was a strong breeze and the air was clear.  I could see forever in my San Fernando Valley.  I have a remarkable and very blessed family and life.  I would not trade my life or career for anything.

I do see how many blessings I have.  I am free from worry and fear; traits lacking in too many American.  The pension crisis is real and can be resolved.  The time for shrieking and sputtering on soap boxes is past.  The time for action is now, let’s begin.

Mr. Bury wrote “NASRA Calls Out ALEC”.  Here are two intelligent, expert parties reviewing the same facts.  How is it possible they terminate in opposite conclusions?  Do we declare one a saint and decry the other a sinner?

Is it fair to brand a man a liar if he follows the rules?  Here is proof not just pensions but accounting rules need reform.  In cited blog, both the opposite parties are correct.  Using an assumed rate of return may be reasonable for computing contributions but it must be tempered by average returns.  Be assured that while NASRA may be technically correct, they also know there is no promised pension.

I would like to believe that elected officials know of the serious flaw and want to correct it but may be locked in fear.  Each time the average assumed numbers are corrected there must be an immediate employer contribution.  One major flaw to be reformed is the employer has control over determining the average return.  There is an incentive to not reflect reality in times of low investment returns.

The 2017 reports are out for CALPERS and CALSTRS.  Current year net investment return was 10% and 10.99% respectively; three-year averages were 4.25% and 5.23% respectively.  These are very impressive numbers and congratulations to both funds.  The 2017 investment income jumped massively over prior years.  It would be interesting to determine where the pension funds were invested.  Recall that pensions lost trillions when the stock markets fell less than a decade ago.

Pensions are not about the current year returns, but long-term averages.  We must have pension and reporting reform together.

The other day I found two reports from the STATE OF NEW JERSEY DEPARTMENT OF THE TREASURY, Office of the Chief Economist Office of Revenue and Economic Analysis, both dated 1/12/18.  The first is “Statistics of Income” and the second was a Study of Taxpayer migration into and out of NJ over 25 years.  I was excited by the second paper.  I was aware of migration studies but had never read one.  I glanced at the report, thought it impressive, and planned to read later.  I went back on January 19 and could not find it, odd?  I then found a story titled; “As Murphy vows millionaires tax, Christie says Jersey will be sorry if rich people flee”, by Samantha Marcus.  We spoke and she was surprised the report seems to have been pulled just a week after published.

Economics must be apolitical.  Politicized economics may find a solution, but likely not the solution.  These reports from the Office of the Chief Economist Office of Revenue and Economic Analysis are not economics.  The reports are extensive but list no authors and there is no contact information for the office publishing the reports.  This is NOT acceptable in my field.

How many readers recall that in 2010 and 2017 the Securities and Exchange Commission served a cease and desist order for the State and then Port of NJ?  We are not looking at a question of which style of pension is best. The issues are much deeper.

Gentle reader, if you expect a pension, you must up your game now.  The state of NJ is ill but not beyond saving.  If you accept the National Association of State Retirement Administrators position, while technically correct, you will have no pension.  My best guess is by 2020, the cuts will be dramatic, and likely permanent.

My name is Tim Alexander.  I am an economist.  I am working for a non-partisan refinance and reform for all pensions.  America is out of time.  In this election year we have the opportunity and funds to restore pensions.  I am looking for a few good men and women to help make a difference.

Tim Alexander
Managing Director
Triune
805-402-4943
tim@triunegfs.com

 

24 responses to this post.

  1. Posted by Tough Love on January 22, 2018 at 10:43 pm

    GIFTING Taxpayer funds (which is what your “model” calls for) to prop-up the materially underfunded but grossly excessive (by any and every reasonable metric) Public Sector pensions is NOT a responsible , reasonable, realistic, just, or appropriate solution.

    Reply

  2. Posted by geo8rge on January 23, 2018 at 10:20 am

    The IRS study is not really that useful.

    How did those people earn $200K that year? If they sold a property when they moved my guess is they were retirees with typical incomes of $50k or less. Also $200k is not that big a deal.

    Ok, they looked at income. How about expenses. How much medical care did they consume and did they have children in the very expensive public schools? What other expenses did NJ government incur because of them?

    I would say on balance if senior citizens can no longer afford to live in NJ and are moving out, selling their property to young workers, that is on balance a good thing for the NJ state pension scheme, unless the young worker does something unconscionable like having children in need of public schooling. Children can be prevented by making children too expensive to afford. Many senior citizens live in those tax-advantaged senior living places, which I don’t like because public school is supposed to be a societal obligation.

    I have heard rumors of people establishing Florida residency. People, so called ‘road warriors’, who figure out ways of living in NJ for 6 months minus one day and Florida for 6 months plus one day. This works for them because they telecommute a lot and are on the road a lot. And NJ and FLA have lots of direct flights from a bunch of airports in NJ. Those people tend not to have children though, which is good for the NJ pension scheme.

    Where did these ‘millionaires’ get their million dollars? I suspect many are one year millionaires due to a home sale, business sale, one hit wonder musician, and the like. So while a millionaire tax sounds like it hits people who really do not need the money, many such millionaires could be people who worked a whole life for a one year payoff.

    Reply

    • Posted by Triune on January 23, 2018 at 11:22 am

      Thank you for your comments. May I disagree with you on a point. Retirees contribute to a local economy in they spend their pension checks at local business; McDonalds and Olive Garden, JC Pennys, local cleaners, markets, etc. As long as a state pays a pension to a retiree living in the same state where the pension is drawn, the state receives a marginal return on the pension expense. As the retiree spends money, the local businesses pay taxes; payroll, property, and income taxes.
      Should a retiree move out of the state paying the pension, the state truly looses.
      It is not as simple as you think. Please keep your comments coming. Call or write any time.
      Tim Alexander
      Triune
      805-402-4943
      tim@triunegfs.com

      Reply

      • Tim, awesome post/editorial/opinion piece, and you were doing so good. Right up until you hit this landmine:

        “Gentle reader, if you expect a pension, you must up your game now. The state of NJ is ill but not beyond saving.”

        NJ is toast, as is Chi-Town AND Illinois. Furthermore CalPERS and CalSTRS may not be completely toasted, but they will be giving out major haircuts within 10 years, if not sooner depending on how SOON the next downturn hits and how SEVERE the downturn is. If it is like 2007-2008 then it will be game over, time for 50% haircuts. And it will be GAME OVER eventually somewhere down the road because we CANNOT have public employees “retiring” at age 40-50 with 50% pensions, nor at age 50-55 with 90% pensions. The cost to fully FUND pensions like that cost MORE than the base salary, using a realistic discount rate. Someone “retiring” at age 40 with a 50% pension could live another 60 years+. More three times (300%) the number of years they actually worked. NO ONE should be able to “retire”, including “public safety”, before age 60-67. No one. If someone doe want to “retire” at age 40-50-60 then THEY should be the ones bearing the burden of such costs. Not innocent taxpayers the majority of which have NO pension at all.

        Reply

        • Posted by Anonymous on January 24, 2018 at 7:59 pm

          Thank you for your comments, I appreciate any and all. May i disagree with you on a point. Both economically and theologically, I do not believe in lost souls (not even my pet troll).
          I would be happy to offer theological reasons, but perhaps not the most appropriate forum here.
          Economically, consider Ireland, for countless centuries one of the poorest European nations. Recently has changed into a very strong member of the EU. How is this accomplished? By encouraging a net in-bound migration of business, by becoming business friendly.
          All NJ has to do to reverse their fortunes is to become business friendly.
          If you lower taxes a bit, and make it easy to do business, business will flow back into the state. It is well and good to have social programs, but they must be funded how?
          Suppose you have 100 people and raise taxes to ten percent, the government has a dollar. Then suppose you cut the tax rate in half. There would be a net incoming migration. Suppose with the inflow, you tax 300 five percent, the government has a dollar fifty, more money.
          Seesaw Junior, many persons are programed to believe the only solution is to forever increase taxes. There are many creditable tax studies documenting tax migration. Guess what, it works in reverse too.
          You tell me, gentle reader, which is harder? To walk on water, change water into wine, or convince a cash strapped elected official to lower taxes?
          Thank you and keep your comments coming. Call or write any time.
          Tim Alexander
          Triune
          805-402-4943
          tim@triunegfs.com

          Reply

          • Posted by Tough Love on January 24, 2018 at 8:51 pm

            Quoting …………

            “All NJ has to do to reverse their fortunes is to become business friendly.”

            Sorry, but they ALSO need to deal with (when PROPERLY valued) about $250 Billion in underfunded Public Sector pension & benefit promises. I can’t fathom what Corporate CFO would entertain a move to NJ until AFTER that (VERY major) problem is addressed.

            And FWIW, the ONLY effective “solution” to that problem is the REDUCE the promised pensions & beneifts.

      • Posted by geo8rge on January 23, 2018 at 2:17 pm

        “Retirees contribute to a local economy in they spend their pension checks”

        Retirees are more than income they are expenses. So I think you need to look at retirement income and subtract expenses like medical care. A lot of medical care is paid for through transfer payments, that is true.

        When pensions are funded by non government bonds and other assets pensions are a boost to the economy. When the pension checks are funded through taxes or ‘money printing’ they are transfer payments. The economic activity that led to the transfer payment was not done by the retiree but by some else.

        I personally don’t believe in the retirement economy or the government economy as being sustainable. At some point if you are not producing stuff you cannot keep the economy going through transfer payments. In Greece they tried to keep the economy going through retirement checks. Greece was solvent until Germany stopped supporting it. One reason Germany was overrun with migrants was their treatment of Greece, but that is another story. So the Germans were foolish too.

        Reply

  3. Posted by Stanley Blake on January 23, 2018 at 10:36 am

    Thank you Tim for your fine editorial. You are quite right that we have to establish a defined benefit program for those who have none before we take on any other projects. It’s good that you are providing leadership in this area. Keep up the good work.

    Reply

    • Posted by Tough Love on January 23, 2018 at 10:46 am

      And those DB Plans for everyone should be no less generous than those granted our Public Sector workers…..

      Oh, but where would the money come from ……. perhaps Mars ?

      Reply

      • Posted by PS Drone on January 23, 2018 at 12:20 pm

        I think from the same pool of resources that the $15 minimum wage is going to come from.

        Reply

        • I think from the same pool of resources that the $15 minimum wage is going to come from.
          Then plan on moving to Anaheim CA, where Fantasyland exists, because that is the only place it could come from…..

          Reply

      • Posted by Stanley Blake on January 23, 2018 at 5:31 pm

        Tim’s magic beans, what else?

        Reply

        • Posted by Triune on January 24, 2018 at 10:20 am

          Hi Stanley and thank for your comments. Please keep them coming.
          I am an economist, not illusionist. I provide practical solutions not magic beans. It is not magic that our Federal Reserve is about to begin selling trillions in securities, nor a trick of mirrors that a Fed surplus is sent annually to the Treasury. I simply argue we take what is coming and what is unallocated, and reserve for pension reform and relief. No loans and no taxpayer involvement.
          I do not deal in fantasy, and cannot help if you reject fact. Call or write any time.
          Tim Alexander
          Triune
          805-402-4943
          tim@triunegfs.com

          Reply

          • Posted by Tough Love on January 24, 2018 at 11:44 am

            Any Fed suplus (whether real via a sale of securities or simply a reversal of the credits added to member Banks’ reserve accounts) is at least conceptually owned by ALL of America’s Taxpayers, and as I stated above………

            “GIFTING Taxpayer funds (which is what your “model” calls for) to prop-up the materially underfunded but grossly excessive (by any and every reasonable metric) Public Sector pensions is NOT a responsible, reasonable, realistic, just, or appropriate solution.”

    • Posted by Triune on January 23, 2018 at 11:27 am

      Cool! Someone that agrees with me. Wow! Let me buy you a coffee.
      I am very grateful to Mr. Bury for supporting my theories.
      I have been contacted by several that follow this blog. I have a request early this morning, to get some economic research out ASAP. I am building a case that since the government, with the best of intentions, caused our recent depression, they should help solve the crisis. Particularly when you consider there are solutions that are non-taxpayer based. What politician would not want to solve the pension crisis in an election year?
      Please keep your comments coming. Call or write any time.
      Tim Alexander
      Triune
      805-402-4943
      tim@triunegfs.com

      Reply

      • “What politician would not want to solve the pension crisis in an election year?”
        Tim, are you making a funny!

        Solving the “Pension Crisis”means CUTTING the formulas, by at least 50% if not more. NO politician is going down that road. Nada. Zero. No one.

        Reply

        • Posted by Anonymous on January 24, 2018 at 8:03 pm

          Thank you for your comments, Seesaw Junior. By cutting the formula, may I assume you mean the “Assumed Rate of Return”? If so, I agree. But we cannot “cut the formula”. Rather the theory is bad and the accounting rules need to change. Accounting rules change constantly which is why GAAP and GASB both publish annual books with new and changed rules.
          So are you on board with insisting we change? We need a few good men and women to become active.
          Please keep your comments coming. Call or write any time.
          Tim Alexander
          Triune
          805-402-4943
          tim@triunegfs.com

          Reply

          • Posted by Tough Love on January 24, 2018 at 8:43 pm

            Tim,

            Are you THAT clueless?

            It was 99.99% clear that when saying …… “Solving the “Pension Crisis”means CUTTING the formulas, by at least 50% if not more. NO politician is going down that road. Nada. Zero. No one.” …… SeeSaw Junior meant reducing the promised pension FORMULAS.

            Fiddling with everything else is meaningless when the promised Public Sector pensions remain ludicrously excessive ….. as they are now.

      • Posted by Tough Love on January 24, 2018 at 11:47 am

        Quoting Tim ………….

        “I am very grateful to Mr. Bury for supporting my theories.”

        For reasons only he knows, Mr. Bury has given you a forum to publish on his Blog, but nowhere have I read that he “supports your theories”.

        Reply

  4. Posted by MJ on January 23, 2018 at 5:14 pm

    Will be interesting to see what Sweeney has up his sleeve as he is already butting heads with our new governor….he’s screaming about the high taxes and fairness in taxes…some silly argument…….I believe that all services should be supported and paid for mainly by those who are using those services especially schools. Why should seniors in their 60s and 70s who have more than paid their fair share still have to pay to support everybody else’s kids if they choose to stay in the area where they have lived all their lives……..

    Reply

    • Posted by Tough Love on January 23, 2018 at 9:40 pm

      Quoting …………. “Why should seniors in their 60s and 70s who have more than paid their fair share still have to pay to support everybody else’s kids”

      Perhaps because when that retired couple had 2 or 3 kids in the Public School System, their property taxes were far LESS than the cost of educating their children…… meaning that they paid LESS than their fair share in those years.

      Reply

      • Posted by MJ on January 24, 2018 at 8:58 am

        TL…..so now seniors should be responsible to pay excessively more after they are past their prime earning yeas?????

        They paid less and their kids were most likely better educated than the over bloated system we have now………

        Reply

        • Posted by Tough Love on January 24, 2018 at 11:35 am

          Quoting MJ ………….

          “TL…..so now seniors should be responsible to pay excessively more after they are past their prime earning years?”

          If they paid LESS than their proportionate share of all local service INCLUDING the cost of educating their children in the years when their children were in the Public School system, then YES. Seems fair ……… at some point in time it needs to average out with everyone (over time) paying their fair share. If not, there must be an outside source of revenue to make up for an ongoing shortfall in local income vs local expenses.

          Now their is ……. NJ State-sourced (via the State Income Tax) money paid to the localities. But unless you live in one of the poorer (i.e., Abbott towns) your town gets a pittance (often less than 5% of total Local expenses).

          Reply

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