HSI(3): “Stunning Ignorance”

Horizon Actuarial Services, LLC (HAS) in their letter to the Bailout Committee criticized this testimony of Joshua Rauh:

15. “Trustees had decades to undertake voluntary, remedial measures before resorting to trying to force participants to take cuts against promised benefits under the Multiemployer Pension Reform Act of 2014 (MPRA). Before reaching this point, they failed to use the many options that were at their disposal to ensure the solvency of plans. They have always had the right to gradually require greater contributions from employers, to make more realistic assumptions about investment returns, and to make more affordable benefit promises on a prospective basis.”

Does not seem too far out there but HAS went ballistic:

These statements display a stunning ignorance of how multiemployer plans have dealt with funding issues over the past several decades. As noted previously, many, if not most, of the problems faced by these plans were caused by economic and demographic events out of the control of trustees and their professional advisors. We can provide countless examples of plans that did exactly what Mr. Rauh accuses these plans of not doing: taking voluntary remedial actions, redesigning benefits, and gradually increasing contributions, all under reasonable assumptions. As an example, from 2006 to 2015 the median contribution rate per active plan participant increased by 93% (much of that increase in response to the 2008 Great Recession), while the National Average Wage Index increased just 24% over the same period. During the same period, benefit accrual rates remained level or decreased for most plans. Trustees, participants, and employers all make sacrifices to address funding problems.

I would point out:

  1. Perhaps some multiemployer plans took remedial action but obviously it was not enough (hence the current necessity for a mass bailout).
  2. Single employer plans certainly faced similar economic events and some of the demographic ones but managed to keep their funded ratios respectable (albeit with a lot of help from stricter funding rules and PBGC’s need for cash).
  3. Professional advisors would anticipate a recession (especially after 10 years) while advisors likely to be hired by trustees anxious to low-ball contributions simply anticipate what their clients want to hear.

 

15 responses to this post.

  1. Posted by Anonymous on September 25, 2018 at 11:12 pm

    John,

    Your #3 is PERFECT.

    Reply

    • Yep, cannot claim that “Professional Advisers” will anticipate a downturn, who would want MORE funding to account for said downturn, resulting in less $$ for salary and benefits, so the fund gets “Professional Advisers” who tell them the stock market will never go down and will hit 50,000 by 2030….

      Reply

      • Posted by skip3house on September 26, 2018 at 7:32 am

        ” to low-ball contributions simply anticipate what their clients want to hear. ” .
        This comes up a lot. Seems to be the level of knowledge by Trustees?

        Reply

  2. “They have always had the right to gradually require greater contributions from employers, to make more realistic assumptions about investment returns, and to make more affordable benefit promises on a prospective basis.”

    Lots of plans increased benefits for Generation Greed during the dot.com bubble. So now they want to stick it to younger and future workers? I guess they want to match every other decision and deal of the past 40 years.

    https://larrylittlefield.wordpress.com/2018/08/15/an-open-secret-mta-capital-costs-have-soared-to-pay-for-underfunded-metro-new-york-construction-union-pensions/

    The objection is to having those who got more than they were first promised being made to give back something, so those who are already worse off don’t lose everything.

    Reply

    • Posted by Tough Love on September 26, 2018 at 2:31 pm

      From you last sentence, it seems that your goal would be to equalize (over time periods) the pensions granted different cohorts of PUBLIC Sector workers.

      Better but STILL too high. ALL of them should be brought ALL THE WAY down to the level typically granted comparable PRIVATE Sector workers………. who are responsible for 80% to 90% of the Total cost of PUBLIC Sector pensions.

      Reply

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

      Reply

      • Posted by Tough Love on September 26, 2018 at 4:26 pm

        Stephen Douglas/EARTH …………. so why are you now posting under “Anonymous” ?

        Yes, we know that ……….. as well as we ALSO know that any lesser Public Sector “wages” are MUCH MUICH MUCH outweighed by the enormity of the MULTIPLES greater-in-value Pubic Sector pensions & benefits …….. MEANING, that the Total Compensation of PUBLIC Sector workers (ALL OF THEM, taken together as a group ………… which is what FINANCIALLY IMPACTS the Taxpayers) FAR exceeds the Total Compensation of comparable PRIVATE Sector workers.

        Are you STILL trying to BS the readers that Mr. Biggs AEI Study showing a 23%-of-pay Public Sector Total Compensation ADVANTAGE in BOTH our home Sates of CA and NJ is wrong ?

        Really, coming from you (a retired Public Sector light-bulb-changer) vs Mr. Biggs (a PHD economist) ?

        Reply

      • Posted by Stephen Douglas on September 26, 2018 at 6:18 pm

        Ain’t we all?

        “Anonymous”, of course, being no more or less anonymous than “Tough Love”.

        Yes, Dr. Biggs study has been described as the “most robust” comparison of state vs private wages, and I still highly recommend it.

        Dr. Biggs, “How Do Federal Employee Salaries and Benefits Compare with the Private Sector?”

        “The CBO’s conclusions are unquestionably reasonable. If the report’s authors were to
        submit it to an academic journal—and there have been many academic reports published on federal pay over the years—it would be taken very seriously. In most technical aspects, the
        CBO’s report is the finest and most advanced study of federal employee compensation ever
        produced. It uses better sources of data and more advanced methods than studies that have been published in academic journals.”

        “First, the CBO analyzed federal wages using a cutting-edge econometric methodology
        that attempts to address certain technical shortcomings in the standard approach used in
        academic studies. The CBO’s approach finds that federal employees on average receive salaries
        that are about 2 percent above private-sector levels.”

        “For instance, when I analyze federal employee wages using the methodology that the progressive-leaning Economic Policy Institute has used in numerous studies of state and local government salaries, I find an average federal salary premium of not 2 percent but of about 14 percent. My point is not that 2 percent is “wrong” and 14 percent is “right,” but rather that there is a range of reasonable answers found in studies of federal salaries and the CBO’s result is likely toward the lower end of that range.”
        ———————————
        If 2 to 14 percent is a reasonable range (for salaries only), then I contend that -4 percent (Munnell, 2011) to +23 percent is a reasonable range when total state compensation is compared, and Biggs is “likely toward the higher end of that range.”

        Moreover…
        1) One more time… Even a light bulb changer might be suspicious of an ersatz trained and experienced financial professional who would rely solely on an outlier study of data ten years old (ten years of the most volatile economic changes in our lifetime).

        2) “the Total Compensation of PUBLIC Sector workers (ALL OF THEM, taken together as a group ………… which is what FINANCIALLY IMPACTS the Taxpayers)”

        LOL.. Would that I were a fly on the wall if your employer told you that your individual benefits would be cut because the “average” benefits in your company were too high. The description of the compression of compensation for public workers is the most relevant aspect of Biggs and Richwine’s study. Unless, of course, you also believe that the “average” New Jersey public pension is $26,000 (……which is what FINANCIALLY IMPACTS the Taxpayers).

        I am not saying that Mr. Biggs AEI Study is wrong. I am saying it is not definitive. Not in 2008, the source of the earliest data. Not in 2014, when it was released, and certainly not in 2018. Read it again, financial guy; read the entire study, not just figure 6.

        Reply

        • Posted by Anonymous on September 26, 2018 at 8:30 pm

          Nice attempt at TRYING to divert attention from the HUGE problem of underfunded STATE & LOCAL pension Plans ….. the ROOT CAUSE of which is their LUDICROUSL excessive generosity …….. to FEDERAL Employee wage levels.

          Sorry ……… we’re NOT falling for that. Now crawl back under your rock.

          Reply

        • Posted by Stephen Douglas on September 26, 2018 at 8:45 pm

          Reading comprehension.

          State, federal, local, military, private… compensation comparisons are infamously prone to error in data and interpretation. Especially those that are ten years old.

          “Average” compensation differences are even more specious.

          Anyone with financial experience should understand that.

          #23% bulls hit

          Reply

          • Posted by Tough Love on September 26, 2018 at 9:05 pm

            SURE ………… when they don’t meet with YOUR agenda and desire for Taxpayers to continue unjustly shoveling their money (via excessive and unnecessary taxation) just so the now LUDICROUSLY Excessive State & Local Public Sector pensions & benefit can continue.

          • Posted by Stephen Douglas on September 26, 2018 at 10:35 pm

            SURE …………

            Agendas aside, if you seriously believe that the one most extreme of the comparison studies is the only valid one, you are a boor.

            If you believe that relative wages and benefits have not changed in the past decade, you are a fool.

            Here’s an idea… I’ll go back to installing incandescents instead of LEDs, you can go back to 2008 wages.

            #23% bulls hit

          • Posted by Tough Love on September 26, 2018 at 11:27 pm

            I’m a boor ?

            No, being a light-bulb-changer is a boor.

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