Why Your Pension Is Really Doomed

The Wall Street Journal picked up on a “novel analysis” by Wirepoints comparing the growth of state pension liabilities relative to state GDP and fund assets which concluded that the real problem “is that politicians have promised over-generous benefits.” It’s not.

New Jersey again leads the pack but look at the graphs:

The Pew values from which these charts were created are based on state supplied data which has its flaws, the main one being the discount rate used to value liabilities. The red lines spike when GASB 67 & 68 enter the picture requiring the use of comparatively reasonable discount rates for valuing and reporting liabilities. No more politicians dictating to actuaries. For CAFR purposes (though not for funding) it is accountants, for the most part, doing the dictating.

Wirepoints on New Jersey:

Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

Today, promises to active workers and pensioners have jumped to $217 billion – a growth of 176 percent in just 13 years. That increase in total obligations is four times greater than the growth in the state’s GDP, up only 41 percent.

Accrued liabilities in 2003 were definitely not $88 billion though that is how they were reported (you have to add the numbers yourself):

That $88 billion in 2003 was based on an 8.75% discount rate whereas the 2016 GASB rates were significantly lower:

Interestingly enough actuaries still have some discretion as to choosing rates under GASB and with the 2017 CAFR New Jersey actuaries predicted, on average, a 1% interest rate hike which will make the headline (assuming there will be a headline) unfunded liability number look lower:

There have been benefit cuts for New Jersey public employees (new tiers for new employees and the theft of COLAs) so liabilities would only have been steadily rising with inflation. The real problem is that politicians, through their minions in the actuarial profession, have undervalued what may or may not be over-generous benefits.

48 responses to this post.

  1. Posted by boscoe on July 20, 2018 at 10:36 am

    So if I understand this posting correctly, you’re saying that the level of benefits granted to public employees is a matter of opinion that reasonable persons can disagree about; but no matter what the level of benefits is, the liability associated with them is continually miscalculated in one direction.

    Some of your loyal readers are not going to be happy with you (looking at you TL……).

    Reply

    • Posted by Tough Love on July 20, 2018 at 3:01 pm

      See my comment to Mr. Bury below.

      Reply

    • Posted by Stephen Douglas on July 21, 2018 at 11:49 pm

      Don’t have a cow, man! Read the first paragraph again. John never said pensions were not overly generous, only that, even if pensions were less-than-generous, there would still be a problem;

      “The real problem is that politicians, through their minions in the actuarial profession, have undervalued what may or may not be over-generous benefits.”

      Reply

      • Posted by NJ2AZ on July 22, 2018 at 12:02 am

        I agree with this take.

        Maybe the benefits were too rich, maybe they weren’t. The voting public never got to decide because the elected idiots never presented their trust cost.

        Reply

      • “It makes no difference whether the New Jersey plan were to promise, on average, an annual benefit of $10,000 or $100,000. Once those benefits get put through the actuarial meat grinder that the politician/actuary cabal has constructed to develop low-ball contributions, the end product is doom.”

        John Bury

        Reply

  2. Posted by dentss donnigan on July 20, 2018 at 10:55 am

    Oh pshaw the government will make good on it ……some how.

    Reply

  3. John, the authors of that Wirepoints research have a separate article up explaining the causes, including changes in reporting and assumptions you talk about. http://www.wirepoints.com/where-illinois-skyrocketing-pension-promises-came-from-wirepoints-original/ Respecting whether politicians over-promised on pensions, maybe you are right about NJ; I haven’t looked. But they sure as hell did in IL, CA and lots of other places.

    Reply

  4. John, you are making the very point Wirepoints is making in the paper. Promises were made by pols way back when using very high rates. They were bad assumptions and the impact of those assumptions (yes, phony official assumptions) was that it made promises by politicians then look very low. Now we are learning the truth through more honest accounting and, lo and behold, those promises are now huge. That’s what an ordinary resident and taxpayer sees today – massive increases in AL that they are largely on the hook for.

    The average person doesn’t know GASB or accounting for pensions. They just know that they are paying more and more for promises that were once reported as $88 B by the NJ government and that are now reported as $217 B by the NJ actuaries. Massive growth from a taxpayer’s perspective.

    The bad news is very few states are reporting the truth to their residents (at least NJ has lowered its rates significantly). Most states’ official numbers are still based on rates above 7 percent (see appendix 5 in Wirepoints piece). That means the whole truth has yet to come out. In most states, people are still being hoodwinked on what the real accrued liabilities really are. When they all bring their rates down, we’ll see another massive growth in AL. That’s not good for taxpayers. Ted Dabrowski from Wirepoints.

    Reply

    • Posted by Tough Love on July 20, 2018 at 2:57 pm

      Quoting ……………

      “The bad news is very few states are reporting the truth to their residents (at least NJ has lowered its rates significantly)”

      If by “rates”, you mean the investment return assumption and hence the rate used to discount Plan liabilities, you are VERY wrong. In fact the 7% Rate that was put in place by Gov Christie shortly before leaving office was RAISED to 7.5% under Gov Murphy.
      ——————————————-
      That said, under GASB “reporting purposes” (by NOT for “funding purposes”), a lower rate must be used for Plan years beyond the point that Plan assets run out.

      Reply

  5. And for clarity, here is just one of the mentions of the changes in investment rates directly mentioned in the paper:

    “New Jersey’s major pension funds have significantly lowered their expected rates of return in recent years, from as high as 8 percent in 2013 to as low as 3 percent in 2016. Those changes directly impacted the state’s promised pension benefit growth over the 2003-2016 period. It should be noted that New Jersey, along with Kentucky and Minnesota have used some of the lowest expected returns in the country. According to Pew’s collected pension data, nearly 80 percent of state pension funds with liabilities of $3 billion or more still use expected investment rates of return of 7 percent and above as of 2016. See Appendix 5 for more details. Wirepoints recognizes that if other states were to lower their assumed investment rates, the overall rankings of these states would change.” Ted Dabrowski, Wirepoints.

    Reply

    • Posted by JB on July 20, 2018 at 11:59 am

      Mark, Ted
      Good work on the study as I can appreciate how much went into it. But relying on CAFR numbers to judge benefits is confusing because of the valuation games. For example, just looking at the NJ chart most people would assume that there was a massive increase in benefits around 2014. Benefits may have gotten too big but phony CAFR numbers do not prove it.

      If 2003 were valued using 2016 assumptions then we can compare.

      Have more to say but typing on a phone, even a new Google pixel 2, is irritating.

      Reply

      • I totally get what you are saying and so does everybody who follows you. But the average person does not. Normal people see the bogus phony numbers put out by their state officials (Illinois and NJ are probably among the worst) and get bamboozled.

        Today, more honest, truthful numbers are coming out and the public is starting to see them and learn about them. They certainly are learning about them through their tax bills.

        Our report is based on official numbers because that is what’s being reported to the general population and to the lawmakers that are making the mess. That’s where the lies come from.

        For your guide, we’ve run the real numbers in Illinois using much lower discount rates, getting to $200 billion-plus numbers, but officially the press, the politicians and the pundits won’t hear it. Which is why we are just one notch away from junk here in Illinois.

        Reply

      • Posted by Tough Love on July 21, 2018 at 7:33 pm

        Quoting JB……………

        “Benefits may have gotten too big but phony CARF numbers do not prove it.”

        We needn’t and SHOULDN’T be looking at a yearly pattern of NJ Plan CARF #s to ascertain if the pensions granted NJ’s Public Sector workers are ….. “too big”.

        All we need to do (and SHOULD do) is compare typical NJ PUBLIC Sector pensions to typical PRIVATE Sector pensions ………… as I did in my long comment below, time-stamped July 20, 2018 at 4:57 pm.
        ————————————————————————-
        One would have to be brain-dead to NOT see that the ROOT CAUSE of NJ’s pension mess traces back to ludicrously excessive PUBLIC Sector pension “generosity”.

        Reply

        • Posted by Stephen Douglas on July 21, 2018 at 10:45 pm

          “It is invalid to compare pensions outside the context of total compensation.”

          Don’t be invalid.

          Reply

          • Stephen, not sure of your point, but we’ve made sure to concentrate on total compensation. As it relates to AFSCME and Illinois state workers, we provide a pretty good case. Free retiree health insurance, starting at age 55. 77 pct of health care costs picked up by taxpayers for actives after 20 years of work. Career workers when they retire now average about $1.6 million in lifetime pensions plus SS. #1 salary in nation when adjusted for cost of living. And their raises have far outstripped private sector increases in last decade. Documented here.

            http://www.wirepoints.com/illinois-afscme-no-contract-but-higher-pay-anyway-wirepoints-original/

          • Posted by Stephen Douglas on July 22, 2018 at 12:33 am

            I will try to stick with the short answer (relatively short) for now. Relying on Andrew Biggs 2014 human capital study. The data is old, but the principle is still sound.

            There are two major points in the study. One compares the average total compensation from state to state. Indeed, there are seven states he lists as very high advantage of public over private compensation. The usual suspects… New Jersey, Illinois, California, Rhode Island, New York, Pennsylvania, and Connecticut.

            There were also 18 states he considered “market level”, where the (average) total compensation of public and private workers is roughly equal. In most, or all these market level states, public sector pensions (and benefits) are clearly higher than those in the private sector.

            But.

            One cannot say that because their pensions are higher, they are necessarily excessive. Ergo…

            “It is invalid to compare pensions outside the context of total compensation.”

            It is deferred compensation, workers trade lower wages for pension security.

            TL says “All we need to do (and SHOULD do) is compare typical NJ PUBLIC Sector pensions to typical PRIVATE Sector pensions…”

            I simply say that is not __necessarily__ so. It’s a basic premise of public sector compensation; public workers in general take a larger share of their compensation as pensions and benefits rather than wages. It is not valid then to say that the public worker’s pension is “excessive”.

            “It is invalid to compare pensions outside the context of total compensation.”

          • Posted by Stephen Douglas on July 22, 2018 at 1:13 am

            Part two…

            As Sean told us, Mr. Douglas also loves to say…

            “1. Our pensions are not overly generous. The guys at the bottom have a higher floor, while those at the top of the income scale of government workers have a lower ceiling.”

            What I actually have said is what several major studies have said, that lower educated public workers generally earn more than equivalent private sector workers, primarily because of their pensions and benefits. More highly educated, professional public workers generally earn substantially lower wages than equivalent private workers, and their higher pensions and benefits are not enough to compensate for the lower wages. And, of course, between these extremes there are thousands of public workers who are roughly equal in total compensation to their private sector peers. Their lower wages are offset by their higher pensions. These mid-level and higher level workers clearly have higher pensions than most private workers. It does not follow that because their pensions are higher, they are excessive.

            “It is invalid to compare pensions outside the context of total compensation.”

            And Mr. Love for years has been repeating his “demonstrations” that use cherry picked examples to show that public pensions are ludicrous. These demonstrations are worse than useless.

          • Posted by Stephen Douglas on July 22, 2018 at 2:23 am

            So what?

            Glad you asked. This range of compensation between higher and lower level workers has been known for years. The Biggs paper was the first I have seen to quantify the phenomenon, at least on a nationwide basis.

            According to his study (the data was from 2008-2012), Illinois State workers had a 26 percent compensation (average) advantage over private workers (more, when job security is considered). New Jersey and California each had a 23 percent advantage. New York State and Connecticut we’re even higher. If true, does that mean all the state workers in these states all had excessive pensions?

            Hardly. The state to state comparisons are averages. The same principle of compressed compensation applies within each state. (Actually, from what I have read, the same principle of compressed public sector compensation occurs in most, if not all, OECD countries.)

            So, in Illinois, as in California and Connecticut, you have a very large group of mostly lower educated, lower paid workers who, mainly due to pensions and benefits, earn much more than they would in a similar private sector job.*

            You have a smaller group of PhD s and MBAs and attorneys who have pensions I could never dream of, and TL would likely classify as ludicrous, who nevertheless earn much less in total compensation than their private sector peers. Ergo, again…

            “It is invalid to compare pensions outside the context of total compensation.”

            And, of course, my favorite… In Illinois and California and New Jersey, you have hundreds of thousands of state workers who fit between those two extremes. Yes, they will almost certainly have higher pensions than most private sector workers, yet their total compensation will be roughly equal. It’s still called deferred compensation. Some people prefer to have higher wages and save for their own retirement. Some accept lower wages in exchange for security.

            “It is invalid to compare pensions outside the context of total compensation.”

            *lower paid workers… earn much more than they would in a similar private sector job.

            Sean is correct, very observant. I have said these workers have much higher pensions and higher total compensation. Unless I slipped up somewhere, I have never said they are overpaid or their pensions are excessive. May be just semantics, but that is not my decision to make. Someone well above my pay grade created this compression, or it somehow evolved in public sector pay systems in every state and many foreign countries.

            By the same token, much to Mr. Love’s chagrin, law enforcement agencies, like the military, in this and many other countries usually can retire earlier than non safety workers. Obviously it is a huge monetary advantage, ceteris paribus, if one can work 30 years and retire 30 years, rather than work 40 and retire 20. Yes, I can see the monetary advantage in TLs “demonstrations”. No, I cannot judge them “excessive”.

          • Posted by Tough Love on July 22, 2018 at 9:19 am

            Quoting Stephen Douglas/Earth………….

            “TL says “All we need to do (and SHOULD do) is compare typical NJ PUBLIC Sector pensions to typical PRIVATE Sector pensions…””

            Boy did you (and quite apparently, INTENTIONALLY) take that out of context. There is CERTAINLY no shortage of my commentary (likely in the 100’s of times over the years) that comparing “Total Compensation” (wages + pensions + benefits) is the proper unit of measure for comparison (vs just pensions). Yet in my above comment, you cherry-picked that quoted statement where I was ONLY addressing “pensions” BECAUSE it was in reply to JB’s comment who was (because THAT was the subject at hand) also ONLY addressing “pensions”.

            Pretty sleazy.

            ————————————-

            And I did notice that you stated ………………

            “Relying on Andrew Biggs 2014 human capital study. The data is old, but the principle is still sound. ”

            Yet when I rely-on, and quote results from the Identical study, you universally blow-off/pan my commentary as useless because of how dated the study.

            Again, self-serving and sleazy.
            —————————————-

            And lastly, in your 3-rd successive comment above, you went back to your often-brought-up commentary that Public/Private Sector Total Compensation DIFFERENTIALS (withing a given State) vary considerably by income group (with LOWER-paid Public Sector worker being Totally-Compensated MUCH more than their Private Sector counterparts, and with the opposite result for Professionals, PHD’S, etc.).

            But (as usual) you refuse to acknowledge (or even mention) that the FINANCIAL IMPACT on Taxpayers in a given State is determined by the AVERAGE Total Compensation differential (of ALL workers at ALL income levels) taken together. …….. that being a 23%-of-pay PUBLIC Sector Total Compensation advantage in NJ, and assuredly much greater if NJ’s Safety workers (with far higher-than-average wages, and the richest pensions) had not been excluded from the quoted Study.

            While that clearly doesn’t mean that each and every NJ (non-Safety) Public Sector worker has Total Compensation exactly 23% higher than their Private Sector counterpart, it DOES means that if we did in fact REPLACE the ACTUAL Total Compensation of each and every NJ (non-Safety) Public Sector worker with Total Compensation EXACTLY 23% greater than that of their Private Sector counterpart, we would get the SAME overall Total Compensation.

            If the situation were the opposite, with NJ’s Public Sector workers able to demonstrate that Private Sector workers had a 23%-of pay Total Compensation advantage, they would assuredly be raising holy-hell and demanding compensation increases to erase that Private Sector “advantage”. Well, I (as a Private Sector Taxpayer) find the now PUBLIC Sector 23%-of-pay Total Compensation advantage no less objectionable …….. and it needs to be eliminated.

            And it is indeed appropriate to bring up and ask Private Sector Taxpayers ……….

            How much MORE would YOU have for YOUR retirement needs if YOU received an ADDITIONAL 23%-of-pay to save and invest in every year of your career …. and extra $50,000, $1 Million, perhaps $2 Million for some?

            Well, those figures are a valid estimate of how much we are (ON AVERAGE) over-compensating all full-career Public Sector workers.

            WHY do we allow this to continue ?

          • Posted by Tough Love on July 22, 2018 at 9:32 am

            Correction ……….. the $50,000 (near the end of my above comment) was supposed to be $500,000.

          • Posted by Stephen Douglas on July 22, 2018 at 12:33 pm

            What part of “The data is old, but the principle is still sound.” do you not understand?

            “23% advantage” is virtually the only result you rely-on. After 8 to ten years of the “greatest recession”, pay freezes, and pension reductions in nearly every state, that’s the one “fact” you cling to?

          • Posted by Tough Love on July 22, 2018 at 1:47 pm

            Quoting Stephen Douglas/EARTH ……………….

            ““23% advantage” is virtually the only result you rely-on. After 8 to ten years of the “greatest recession”, pay freezes, and pension reductions in nearly every state, that’s the one “fact” you cling to?”

            Oh really ? And how about my VERY clear & accurate demonstrations that Public Sector “Pensions” are ROUTINELY 2.5, 3, 4 (even 5 to 6 in your crazy State of CA) times greater in value upon retirement than those of comparably situated (in wages, age at retirement, and years of service) Private Sector workers ?

            And THOSE multiples are only for the lucky few Private Sector workers still accruing benefits via DB pensions. For MOST Private Sector workers, now only accruing retirement security via 401K Plans, the above MULTIPLES would be materially greater.

            And yes, I do know that I said “Pensions”.

  6. Posted by Stephen Douglas on July 20, 2018 at 1:31 pm

    From Wirepoints July 9, 2018 article:

    “The report proved a lack of dollars wasn’t the issue.”

    The report proved no such thing.

    Reply

    • Good try, Mr. Douglas. You have misrepresented the facts. That comment in the July 9 piece was about Illinois. Here is the full paragraph:

      “The report proved a lack of dollars wasn’t the issue. Illinois pension assets – buoyed by taxpayer contributions – also grew far faster than the same economic indicators in the graphic above. But taxpayer contributions could never keep up with the state’s explosive growth in promised benefits.”

      The July 9 paper references the June 27 paper in which Illinois assets are shown to have grown by 644 percent from 1987-2016. That was 2.7 times more than state Personal Incomes and 3.7 times more than the state general revenues.

      We also show other ways in which assets grew significantly in Illinois – it was just never going to be enough to keep up with the growth in benefits.

      I am posting the two papers here for your review.

      July 9 paper http://www.wirepoints.com/janus-v-afscme-and-the-truth-about-illinois-pensions-in-one-graphic-wirepoints-original/

      June 27 paper http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/

      Reply

      • You have a lot of data, Mr. Dabrowski, but you are producing more heat than light.

        ” Illinois pension assets – buoyed by taxpayer contributions – also grew far faster than the same economic indicators in the graphic above. ”

        And they should have grown even faster “– buoyed by taxpayer contributions – ” (and by the returns on investment) properly contributed and invested, pension assets should have accumulated enough to equal pension liabilities. Had that occurred, those pensions would be 100 percent funded today. That’s the way pensions work, ideally. For whatever reason, whoever is at fault (there is plenty to go around) those payments were not made, ergo those returns on the shorted contributions did not materialize, resulting in the crisis you see today.

        “But taxpayer contributions could never keep up with the state’s explosive growth in promised benefits.”

        Well, not now. It’s too late, but if the proper contributions* had been made over time, those contributions plus the returns could have kept up, at a much lower cost to the taxpayer overall.

        *proper contributions properly calculated, of course. Many states today are paying “one hundred percent” of ARC and still falling further in the hole. If anything is the real problem, that is it.

        Reply

        • You seem to imply that ordinary residents should ignore whether those benefits are growing too fast or not. Whether they are affordable or not. Whether they are destructive to the economy or not. Never mind that 60 percent of Illinois pensioners retired in their 50s or that they have automatic compounding 3 percent colas or that they can accumulate two years worth of sick pay and then turn it in for years of service. Or the spiking or the….This is corrupt Illinois and all of that needs to be challenged.

          I may be wrong but I assume you are in the same camp as the Illinois reporter who recently wrote that it’s time for taxpayers to just “suck it up and pay.”

          Reply

          • Posted by Stephen Douglas on July 20, 2018 at 5:28 pm

            “I may be wrong but I assume you are in the same camp as the Illinois reporter who recently wrote that it’s time for taxpayers to just “suck it up and pay.”

            Wrong camp. It is just not feasible in Illinois, New Jersey, and a couple of other states (barring a Federal bailout, of course, and we don’t want to go there). There will be cuts, it’s just a matter of how fairly the sacrifice is shared. Even in other states that are nominally 60-100 funded, there may be cuts resulting from the California rule decision, or in response to another market downturn.
            ——————————-
            “You seem to imply that ordinary residents should ignore whether those benefits are growing too fast or not.”

            Wrong again. And you are still adding to the confusion. Your whole premise is the pension “promises” (accrued liabilities) are increasing to fast. “those benefits are growing too fast” is not the same thing. Related, but different.

            As many times as you need to deny it, there is a huge difference between the increase in pension “liabilities” and the increase in pension “benefits”.

            Ordinary residents can obviously see that pension costs are growing too fast, and are in many cases, already unaffordable. I don’t disagree. I disagree with your assessment of the cause, and how can you possibly reform pensions properly if you don’t know the true cause?
            ————————-
            A semi-surprising statement from Mr. Glennon in the comments section of Wirepoints July 15, 2018 article.

            ” All employees hired since 2010 have a lousy benefit with low normal cost that drags down the average.”

            Lousy benefits? Confusing as your analysis is, the gist is that pensions are excessive. Therefore pension reform means pension reduction. I think you will find some disagreement on that.

          • Posted by Sean on July 20, 2018 at 5:59 pm

            No Ted, you are not wrong about Mr. Douglas. He is very much in the camp of “suck it up and pay.” He also loves to slap on quotes from his cut and paste archives, channeling Mary Pat Campbell at almost every turn: “Don’t pay the bills, they keep getting larger.” Of course, he always seems to leave out those quotes of MPC’s that might not rub his viewpoint the right way.

            He also loves to get snarky with various pictures and cartoons, and he is also a bilingual copy and pastier, often thrilling his readers with pithy comments in French, Latin, and Spanish, I believe.

            Mr. Douglas also loves to say things like, “It’s contract law. Get over it.”
            (I guess Douglas has never heard the words, “Contracts get broken all the time. It’s what we do around here.”). Oh well.

            But the main thrust of the Smooth One’s arguments fall into these bullet points:

            1. Our pensions are not overly generous. The guys at the bottom have a higher floor, while those at the top of the income scale of government workers have a lower ceiling.

            2. If they had only been funded, we wouldn’t have these problems, which is like saying, “Joey would’ve been on time to work today if he had left his house earlier. Leave too late, and you wind up late for work.” Of course, we could look at WHY Joey was late. Maybe he’s a habitually late worker, or maybe he pulled off the road to help a little old lady. Doesn’t matter to Douglas. All he sees is that half the money collected for pensions was spent on beer and strippers, and the other half was just wasted. No matter. Tax payers need to pony up and pay. It’s the law.

            3. Whether or not the promised benefits were affordable or sustainable in the first place is NEVER a part of his lectures to those less snarky than him.

            For me, It is all very simple: MOST pensions level of benefits were not affordable or sustainable. Not then. Not now. Not ever.

            If there is ANY chance that a defined benefits package can work, they must have SHARED RISK. None of this “heads we win, tails you lose” and “our benefits only go up, never down” crap.

            Finally, LOVE the work you and Mark are doing at Wirepoints. I read it every day. (Like you, I also live in Illinois, Where the Governors Make the License Plates!)

          • Amen! All I can say.

          • No Ted, you are not wrong about Mr. Douglas. He is very much in the camp of “suck it up and pay.” He also loves to slap on quotes from his cut and paste archives, channeling Mary Pat Campbell at almost every turn: “Don’t pay the bills, they keep getting larger.” Of course, he always seems to leave out those quotes of MPC’s that might not rub his viewpoint the right way.

            He also loves to get snarky with various pictures and cartoons, and he is also a bilingual copy and pastier, often thrilling his readers with pithy comments in French, Latin, and Spanish, I believe.
            Oh – O, Stephen may not EVER recover from that beat down 🙂

          • “It’s contract law. Get over it.”

            Pretty sure I never said that.

            “Tax payers need to pony up and pay. It’s the law.”

            Nope. Not me.

            “1. Our pensions are not overly generous. The guys at the bottom have a higher floor, while those at the top of the income scale of government workers have a lower ceiling.”

            Yeah, that’s me. “The guys at the bottom have a higher floor”… Which means, yes, most lower educated public workers do earn more (much more) than their private sector counterparts. and mainly because of their pensions and benefits.

            “those at the top of the income scale of government workers have a lower ceiling.”

            Me again. Public sector professionals, doctors, lawyers, generally earn much less in wages than their private sector counterparts. Their so-called generous pensions and benefits are not high enough to counterbalance their lower wages.

            And more recently, I like to add that there are hundreds of thousands of public sector workers between those two extremes whose total compensation is roughly equal to their private sector peers. It’s tautological. Their lower pay is roughly balanced by their higher benefits.

            I do admire Mary Pat Campbell. I’ve learned a lot from her articles. When I talked about insufficient contributions and plenty of blame to go around, I include her several references to contributions being shorted with the agreement of the unions. That’s not good. In fact, in one state (Connecticut, I believe), it is illegal to short the contributions without the express approval of the unions. One of many reforms needed, in my humble opinion that would be beneficial. Pension reform is not just benefit reduction, although that may be one part of it. Okay by me, sir. And the “hundred percent ARC payments that aren’t. Lot’s of changes need to be made

            And yes, I still believe the Wirepoints article is confusing, misleading, and inflammatory.

            Quoting Mary Pat Campbell, 8 February 2018…

            EXCELLENT STUDY FROM WIREPOINTS

            This is not about the POB, directly. But it is heavily related.

            Ted Dabrowski at Wirepoints has done a study looking at the growth of Illinois pension liabilties… and yeah, they’re out of control.

            Yeah, I disagree with Mary Pat Campbell there.

          • Posted by Tough Love on July 20, 2018 at 7:31 pm

            Stephen Douglas (aka EARTH) is a retired CA Public Sector worker.

            What it comes down to for him (and his Public Sector ilk) is that we’re “special”, pay all that was promised no matter if those promises were necessary, just, fair to taxpayers, or affordable, and even though were BOUGHT from Elected Officials with BRIBES disguised as campaign contributions……….. and all with a Taxpayers-be-damned attitude.

          • Posted by Earth on July 22, 2018 at 4:27 am

            Earth to Tough Love:

            You’re quoting yourself, Brother Love. That’s your Ilk, not mine. Check the archives.

            Earth’s baby pictures:

  7. Posted by Tough Love on July 20, 2018 at 4:57 pm

    John,

    While I have long realized that your personal focus is on the pension actuarial profession’s abrogation of it’s responsibilities in the valuation of Public Sector pensions, to see you say point blank that the real problem for the Public Sector pension mess is NOT because …… “politicians have promised over-generous benefits.” …. truly shocked me.

    There are certainly many ways to define “overly generous” and perhaps that is why (on this issue) our opinions appear to be at the opposite ends of the spectrum, and I would like to hear your definition. For example, on one end, there are Public Sector Unions/workers who define such generosity ONLY with respect to the generosity of other PUBLIC Sector Plans. Under THAT definition, the “generosity” of NJ’s Plans is about average.

    Personally I find the latter offensive, after all, for a Plan that is reasonably/conservatively valued (say using the assumptions/methodology commonly used in the valuation of Private Sector DB Plans), all of the workers own contributions (INCLUDING all of the anticipated investment earnings) will rarely accumulate to a sum upon retirement sufficient to buy more than 10% to 20% of the total cost of their promised pension. That leaves the Taxpayers with the responsibility to pay for the 80% to 90% balance.

    While I’m sure someone will chime in that investment earnings pay for 50+% of the total cost, both you & I know that that’s a red herring ………. the interest follows principle thing ………… so I won’t discuss that further.

    With Taxpayer responsible for 80% to 90% of total Plan costs, should the measure …… for the purpose of assessing the “generosity” of Public Sector pensions …………. not be via a comparison to the retirement security typically granted PRIVATE Sector workers by their employers (assuming we don’t have demonstrable difference in “wages” that would justify pension differentials to offset the extent of the wage difference)?

    Today, while there remains a lucky few in the Private Sector who are still accruing Final Average Salary DB pensions (of the type granted almost all Public Sector workers), retirement security offered Private Sector workers it is (in MOST cases) in the form of a 2% to 4%-of-pay “match” into a 401K Plan. In addition, they get their employers 6.2%-of-pay contribution into Social Security on their behalf.

    While I do not have supporting statistics, I doubt that any reasonable/informed person would argue that there are both:

    (a) far more Private Sector workers participating in 401K Plans (with no DB pensions) than Private Sector participants currently accruing benefits in Final Average Salary DB Plans, and
    (b) the typical Private Sector Final Average Salary DB Plan is MORE GENEROUS than the typical Private Sector 401K Plan (and likely by a factor of 2 or more).

    I have (via comments on this Blog) on numerous occasions put forth demonstrations comparing the “generosity” of full career workers under typical Private Sector DB Plans (still accruing benefits today) and typical (non-Safety and Safety worker) Public Sector Plans. When I last did that for NJ (which now has LESS generous pensions than many other States due to the COLA-suspension), non-safety worker pensions came in with a “value upon retirement” about 2.5 times greater than that typically granted Private Sector worker retiring at the SAME age, with the SAME wages, and the SAME years of service, and with that 2.5 times rising to almost 4 times for Safety workers. And if COLAs had not been suspended, those multiples would INCREASE by about 25% to 30%.

    The source of the multiples greater-in-value NJ Public Sector pensions traces to 2 primary elements. First (for the 25 year service employee) the-per-year-of-service formula factor for (pre-2011 hires) Public Sector non-safety workers is 1/55=1.82% and for Safety workers is 0.65/25=2.60% vs a Private Sector formula factor of about 1.5%. Second, in Private Sector Plans the Normal Retirement age (NRA) is typically 65 with per-year-of-age downward adjustment of about 5% for EACH year of age that you elect to commence receiving your pension before your NRA.

    With greater formula-factors and MUCH younger NRAs for Public Sector workers, it’s not hard to see how the “value” of their pensions can be MUCH greater than comparably situated (in wages, age upon retirement, and years of service) Private Sector workers. As a quick example, lets compare (using the information provided above) the pension of a NJ Police Officer retiring with 25 years of service at age 55 (very typical) and with a final average wages of $150K with that of a similarly situated Private Sector worker.

    The Police officer’s annual pension (commencing at age 55) would be:

    $150,000 x 25 x 0.026 = $97,500

    The Private Sector worker’s pension would be”

    $150,000 x 25 x 0.015 x {1-[(65-55) x 0.05]} = $28,125

    And the Police Officer’s pension is $97,500/$28,125 = 3.47 times (or greater in value) than that of the similarly situated Private Sector worker.

    A similar workup for NJ’s non-Safety Public Sector workers would yield a pension “value upon retirement” about 2.5 times that of the Private sector worker participating in the typical Final Average salary DB pension Plan.

    Lastly, the MULTIPLES greater Public Sector “value upon retirement” pensions calculated above assumed that the Private Sector worker was among the lucky few still accruing benefits in a Final Average Salary DB Plan. But (as pointed out earlier) MOST Private Sector workers are now in 401K Plans (NOT Final Average Salary DB Plans) that are likely half (or less) as valuable as the older Private Sector DB Plans.

    Therefore a comparison of NJ Public Sector pensions with the “value” of Private Sector 401K Plans would likely result in Public Sector advantage-multiple DOUBLE what I calculated above.
    ——————————————–

    John, we could of course argue about the details about what I provided above, but no matter how you shake it, Public Sector pensions are MANY MULTIPLES greater in value upon retirement than the retirement security typically granted a comparably situated Private Sector workers.

    Perhaps you would be willing to elaborate on why you believe that the Public Sector pension mess is NOT the result of overly-generous pensions, and if you believe my above discussion/calculations are not correct?

    Reply

  8. […] « Why Your Pension Is Really Doomed […]

    Reply

  9. Posted by Anonymous on July 20, 2018 at 10:30 pm

    Time to move on no one is buying not even John

    Reply

  10. Posted by Stephen Douglas on July 22, 2018 at 3:30 am

    Wirepoints on New Jersey:

    Unsurprisingly, the states with the most out-of-control promises are home to some of the nation’s worst pension crises. Take New Jersey, for example. The total pension benefits it owed in 2003 – what are known as accrued liabilities – were $88 billion. That was the PV, or present value, of what active state workers and retirees were promised in pension benefits by the state at the time.

    —————
    There is a lot of confusion with discount rates and other actuarial problems.

    “Wirepoints released a report on these booming benefits earlier this year, and while it received strong coverage online nationally, Illinois’ traditional media didn’t want to touch it.”

    Wirepoints article seems to have it a nerve and received praise from several sources. Okay, I’m just a kid from a small farm (in Illinois, of all places). I squeeked by with a “B” in my statistics class 40 years ago, and haven’t used it much since. But I don’t want to touch it either. Wirepoints claims to have proved that underfunding was not the problem, but I can’t see where this article proves any such thing. It looks like a lawyers classic document dump with a lot of irrelevant (but inflammatory) charts and data.

    The only correlation I see is that the states with the lowest pension contributions (going back as far as 30 years) are the ones in deepest crisis.

    “When you hear hoofbeats, think of horses not zebras”.

    Reply

    • Posted by Tough Love on July 22, 2018 at 9:30 am

      The ONLY thing that a high-level of pension contributions “proves” is that the Union/Elected-Official cabal has been more “successful” in UNJUSTLY extorting larger amount of money from it’s Taxpayers to pay for Public Sector pension Plan promises that are ALWAYS multiples greater-in-value upon retirement than those typically granted comparably situated Private Sector workers.

      Reply

  11. Posted by MJ on July 22, 2018 at 9:51 am

    So does anyone think that the gold life time health benefits will be reduced or reformed? The pension stuff seems fluid as it depends on who one asks in regard to overly generous or not, ability to pay or not but the health benefit thing seems pretty clear cut……..publics can pay for them if they want to retire early or just stop providing them or charge publics based on ability to pay such as taking into account household income…..the lower paid workers should not have to pay as much as those with household incomes of significant proportions

    Thoughts?

    Reply

    • Posted by Tough Love on July 22, 2018 at 10:28 am

      In NJ, Public Sector Healthcare benefits are far above “Gold”, often referred to as “Platinum+”.

      Yes, they should be reduced to a level such that the Taxpayer SUBSIDY towards Public Sector healthcare benefits (separately measured for actives and retirees) is equal to that typically granted Private Sector workers by their employers …………… and significantly noting that for the retiree group, in the Private Sector, that subsidy is typically ZERO.

      Reply

      • Posted by PS Drone on July 23, 2018 at 3:37 pm

        C’mon, let’s not engage in the proverbial “race to the bottom!” If private sector citizens sucking on the proverbial hind t-t when it comes to the health insurance that they get/can afford, that is no reason to take away the platinum coverage that our public sector brethren receive at taxpayer expense. We need platinum Medicare for all. NOW. BTW, I am voting for the socialist bimbo from Queens who promises to deliver same when she gets to Washington.

        Reply

        • Posted by El gaupo on July 23, 2018 at 4:15 pm

          Now now PS. Bimbo is a trigger word for some on here and while you (and I) disagree with her platform, she is most certainly not a bimbo. I have seen much dumber folks run for office. (Sarah Palin comes to mind) The correct term is socialist politician.
          And MJ, I agree with you as to how much public employees should pay relative to total income. There is a sliding scale for income. However, it does not take into account total household income. Therefore, a public employee who makes $110,000 with a non working spouse will pay 35% of the cost of bennies. However, a woman in my town worked on a legislators staff at a paltry $20,000 or so a year. She was eligible for medical benifits for the whole family at 5% of the cost. Ok fine. But her husband was a big shot attorney making half a million a year. Why should the state subsidize 95% of a family plan in that situation when they can more than cover the cost but the family who earns 5 times less pays 30% more of the total cost?

          Reply

          • Posted by El gaupo on July 23, 2018 at 4:17 pm

            PS drone. Cynthia Nixon also comes to mind. As does trump for that matter. Whatever the hell category he fits in.

          • Posted by Tough Love on July 23, 2018 at 9:01 pm

            El gaupo,

            Good point (and example) on the subsidy level ………… FINALLY we agree on “something” !

          • Posted by Tough Love on July 23, 2018 at 9:03 pm

            Quoting Elgaupo ……………..

            “As does trump for that matter. Whatever the hell category he fits in.”

            George Will had it correct a few years back when he called Trump a “bloviating ignoramus”.

          • Posted by El gaupo on July 23, 2018 at 9:32 pm

            TL, it might even be as low as 3% of benifits cost for that salary level. Insane that a very well off family can pay that little for nj state health insurance.
            George Will is correct. I am no liberal but Trump is destroying the GOP.
            And while I am by no means a “feminist”, there is your quotes, lol, just as I am not a chauvinist; I believe in full monetary equality and any other equality between the genders. I have two teenage daughters and while I may drop a few f bombs and the like in their presence, but you (and they) will never hear me use words like bimbo, b..ch, or worse. It is beneath me and degrading. I wouldn’t want someone talking that way about my daughter and I’m sure Acosta-Cortez’ (who is way to liberal for me) father and mother for that matter would take offense to it.

          • Posted by El gaupo on July 23, 2018 at 9:37 pm

            I’m all for passionate arguments and the like, including yelling and salty language. Doesn’t bother me. However, it crosses a line when we degrade someone because of their race, gender, sexual orientation, height, weight, physical handicaps, etc.
            trump has done this again and again and we have become desensitized to it.

  12. Posted by Chad Stefanko on July 23, 2018 at 4:55 pm

    So then I’m assuming that all our pension troubles are a function of the level of interest rates in our economy today. And is it the case that if interest rates and/or inflation were to spike sometime in the next say 5 to 10 to 20 years, this trend would reverse itself and we would see more manageable pension systems?

    Reply

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