NJ GASB Games – 2019

Service cost under GASB 67 rules for government plans is defined as the value of benefits earned during a reporting period. In a retirement system like New Jersey’s with a stable workforce and no changes in the terms of the plan you would expect this cost to be steadily increasing. However, in order to generate ‘good’ news on the funded status of the system, the actuaries took some liberties with the cost calculations that showed the system’s funded ratio rising from 38.41% to 39.73%. Here is how they did it.

When Cheiron replaced Buck and Milliman as actuaries for the plan with the 7/1/18 valuations they took to changing assumptions that decreased the reported value of liabilities by $15 billion (-6.8%) to raise the total funded ratio to 38.41%:

With the 7/1/19 valuation we got another $9.3 billion reduction in liabilities (-.4.4%) that raised the funded ratio to 39.73%:

Detail by plan is in this spreadsheet.

Now as to the Service Cost here is how it developed over the years:

 

So how did the Service Cost go down 20% and then 13% when one would have expected an increase of about 15% annually? A good question but unfortunately there is:

  1. nobody to ask,
  2. nobody else who would ask, and
  3. nobody else who would even notice.

Perhaps the Cheiron actuaries are presciently phasing in a plague component in their mortality factors.

31 responses to this post.

  1. Posted by Tough Love on May 17, 2020 at 8:33 am

    John,

    I’m assuming your ($15 Billion) change in assumptions is the ($14,902,920,074) and it looks like it was done again in the following year to the tune of ($9,374.253,293).

    Wasn’t it the 2-nd change, the ($9,374.253,293) not the ($14,902,920,074) that decreased the reported value of 6/30/19 liabilities resulting in a raise in the total 6/30/19 funded ratio from 38.41% to 39.73%:

    It appears that the ($14,902,920,074) change impacted the prior year’s liability and funded ratio. Is that correct?

    Reply

  2. Posted by Tough Love on May 17, 2020 at 8:44 am

    John,

    I’m assuming that when you say that (re the change in service cost) there is “Nobody to ask”, that you mean that Cheiron would not respond to such an inquiry from anyone other than their client (the State or Plan Administer), and that if someone like you) asked the State or Plan Administer to get the answer, they would refuse to do so.

    Is that correct ……………. or has no one asked, so no one has yet refused to answer that question?

    Reply

    • Obviously Cheiron won’t reveal backup numbers to me but there should be an explanation. The question is who understands enough of what was done to even form this question:

      “The value of liabilities in the New Jersey retirement system using GASB rates has decreased from $221 billion as of July 1, 2017 to $207 billion as July 1, 2019 – the first two years that new actuaries (Cheiron) have prepared the valuations. This has made the funded ratio of the system look better (from 36% to 40%). In those two years $24 billion was reported as a drop in the value of liabilities due to changes in assumptions.
      1) What assumptions changed?
      2) Was it understood that Cheiron was to make those changes as a condition of employment?”

      Reply

  3. Posted by Tough Love on May 17, 2020 at 10:05 am

    Off Topic …………

    What a way to run a country:
    —————————————–

    A is investigating B

    B works for C

    B recommends to C that A be fired

    C fires A

    ————————–
    A = State Department Inspector General Steve Linick

    B = Secretary of State Mike Pompeo

    C = Pres. Trump

    Reply

    • Posted by E on May 17, 2020 at 11:18 am

      https://www.nj.com/opinion/2020/05/red-america-is-abandoning-jersey-in-its-hour-of-need-menendez-is-leading-the-push-back-moran.html

      Another article showing the outright hypocrisy of some red state leaders. Especially Florida’s governor. It’s ok for him to take take take NJ $$. Same with the rest. Natural disasters and just everyday prop up of their shitty educa-ma-cation systems. These morons like McConnell would go belly up if not for NJ, MA, NY, CT etc.
      screw them. Well?? We all got thoughts and prayers as a response to all that ails us. Lol.
      TL can I please you my infamous line to McConnell??? As in “Fuck You, Pay Us”. Not save our pensions, pay for ALL the Covid crap. Without the lecture, you pompous turtle faced, piece of shit.

      Reply

      • Posted by Tough Love on May 17, 2020 at 11:41 am

        McConnell, Pompeo. and Rand Paul ……… all POS kissing Trump’s very fat ass.

        Reply

        • Posted by E on May 17, 2020 at 12:42 pm

          Article says KY took $45 B more in federal tax money than they paid out. NJ paid $11B more than we received. And they have the BALLS to criticize us. Rand Paul is another fucking moron. What would happen to KY if they didn’t get that $45 B for just one year? And we got to keep ours…..almost a third of entire state operations budget. Christ….KY gets more dough from the feds than our entire state budget. Florida Gov? Don’t ask for a fucking dime when Arthur batters your coast. Fix it yourself like you want us to do. Bunch of hypocrites.

          Reply

          • Posted by Marine1 on May 17, 2020 at 5:22 pm

            E- I find it hard to believe Florida isn’t going to be hit hard by this whole thing. We go to Disney every year for the last 11 years. Guess who isn’t going back to Disney until this thing is eradicated ? We can’t be the only people thinking like that. How much tax revenue is Disney for Florida ? Has to be a ton.

          • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on May 17, 2020 at 8:46 pm

            We can’t be the only people thinking like that. How much tax revenue is Disney for Florida ? Has to be a ton.
            Disney makes a TREMENDOUS amount of $$ from their theme parks, but they also are very diversified, and not just in the entertainment industry. Disney and the large Fortune 100, Fortune 500 companies will survive and come back. The states, all of them not just FL, will survive also, all they have to do is exactly what I suggested 2 or 3 months back, start cutting salaries. Cut ALL salaries prospectively, going forward, and also cut ALL pension formulas. There is ZERO chance of ANY state “taxing” their was out of the pension, and now the Covid-19 induced General Budget decline, which are multi-Billion $$ deficits. If ANY politician tries to raise taxes at anytime in the next 24 months, and how ever much long this Covid-19 impact lasts without full recovery, maybe 5-10 years, they will be RECALLED. The party if OVER for our esteemed GED Gov employees. The politicians played the public employees and the politicians AND the public employees played the private sector taxpayer. But that game is now over. Just to refresh your memory let me play Danielle DiMartino Booth’s video again, and once again pay CLOSE ATTENTION at the 1:38 mark on to 2:39 “These are the seeds of social unrest in this country, you can only drive so big of a wedge between the haves [public sector Fantasyland workers] and the have nots [private sector real life workers]… She knows her shit, and I guarantee you this is coming… https://youtu.be/65MKsmFF6Lo

        • Posted by Anonymous on May 17, 2020 at 6:34 pm

          I think this is the first time I’ve ever agreed with tough love

          Reply

      • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on May 17, 2020 at 8:24 pm

        TL can I please you my infamous line to McConnell??? As in “Fuck You, Pay Us”.
        You DO KNOW that you’re going to be taking a pension haircut, right EG? Marine1 also. And I predict within 3 years. The money is not there. It was NEVER there. And it never will be there. The only question is how MUCH of a haircut?Your politicians and unions leaders conspired to engage in a fraud. They lied to you, promising ridiculous pensions that they KNEW would never be paid, not in the long run. A classic Ponzi Scheme, for your votes and money. Classic, straight up, FRAUD. It is not a question of haircuts, just how much.

        Reply

    • Posted by PS Drone on May 17, 2020 at 8:49 pm

      It’s almost exactly like Obama firing Flynn in 2014 because he had the balls to disagree with his drone program and then, in January of 2017, calling for a bogus investigation of Flynn because Trump appointed him Director of National Security. In case you were born yesterday, that is how it works in Washington.

      Reply

      • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on May 18, 2020 at 4:20 pm

        It’s almost exactly like Obama firing Flynn in 2014 because he had the balls to disagree with his drone program and then, in January of 2017, calling for a bogus investigation of Flynn because Trump appointed him Director of National Security. In case you were born yesterday, that is how it works in Washington.
        Man, this Flynn case is one of the most corrupt I have seen. It is 1 part corruption, and 3 parts politics. One thing is certain, if Comey, McCabe, Page, Strzk and the rest were not connected in they would be in prison. Judge Sullivan was a real shocker, as he had a good reputation for dealing with dirty US Attorneys/AUSA’s. He knows he has to dismiss the Flynn case, and he will (assuming Flynn does not ask the Court of Appeal for a Writ of Mandamus/Prohibition first, which is VERY possible) along with a lengthy “commentary” on what he perceives as a political decision by DoJ. Sullivan honestly thinks the dismissal isthe result of politics.

        Reply

  4. Posted by Marine1 on May 17, 2020 at 9:02 pm

    Guys I wish you all the best. Checking out for awhile. Again best of luck dealing with the covid-19 and the economy moving forward. Stay healthy.

    Reply

  5. Posted by Brian on May 18, 2020 at 9:05 am

    The service cost went down for a simple, and boringly non-nefarious reason. The service cost calculation is very sensitive to the interest rate. Under GASB 67, for a plan that is projected to run out of assets, the interest rate used is based on a blend of the assumed return of the plan and a low-risk rate described under GASB 67. These NJ plans are poorly enough funded that their GASB discount rates would be determined under those rules, not at the discretion of the actuary.

    The projected depletion date determines when you switch from using the assumed return to the low-risk return. That depletion date is very sensitive to the initial conditions (particularly the funded ratio, the contribution rate, and the payroll), so it can change noticeably from year to year.

    The result is that for the primary drivers of the NJ service cost (Teachers, P&F, and PERS) the GASB discount rate has risen each of the past two years. You can see that on pages 63-66 of the 2019 financial statements. For example, in the teachers’ plan, the GASB discount rate has risen from 4.25% in 2017 to 4.86% in 2019, to 5.60% in 2019. That rising discount rate is what drives the service costs lower.

    You can dispute the utility of the GASB calculation, but this result is driven strictly by the accounting rules in place, not some nefarious manipulation of discretionary assumptions.

    Reply

  6. Posted by Tough Love on May 18, 2020 at 10:31 am

    Off Topic ……….

    The jackass-in-chief is at it AGAIN:

    “Trump officials deflect blame for US death toll, escalate reopening push”

    https://www.cnn.com/2020/05/18/politics/trump-us-death-toll-blame-reopen/index.html

    Reply

  7. Posted by E on May 18, 2020 at 2:44 pm

    https://www.foxnews.com/us/florida-police-break-up-block-party

    More assholes. They are on both sides and they are everywhere. Hmmm…infra red. Wonder what we would see if other wise.
    Millennials and gen z. Lot to learn.

    Reply

    • Posted by Tough Love on May 18, 2020 at 3:06 pm

      WOW, just read that linked article. Florida is a nice place to visit …… Orlando, and much of the southeastern shoreline vacation areas……… but it looks like much of those who reside there year-round are just like the dumb-ass rednecks that inhabit much of the South.

      Reply

  8. Posted by Tough Love on May 18, 2020 at 3:25 pm

    There are some really good opinions/analysis out there.

    Here’s one by Jeffrey D. Sachs, a professor and director of the Center for Sustainable Development at Columbia University.

    https://www.cnn.com/2020/05/18/opinions/coronavirus-recession-economy-public-health-trump-sachs/index.html

    Reply

  9. […] for dealing with budgets holes: . . Murphy dealt with the pension problem by bringing in actuaries to change assumptions that generated $25 billion in lower liabilities while in his world it is essential workers who will have to be eliminated first with no serious […]

    Reply

  10. […] that gets the June number to tick down from there. At least that’s how it’s done with public pension numbers in New Jersey where the numbers people get told what to shoot […]

    Reply

  11. […] Cheiron has only been on the job for two valuation cycles yet the Police and Firemen’s Retirement System of New Jersey (PFRSNJ) has issued a Request for Qualifications and Request for Actuary Firm. Among the things they are looking for in a new actuary: […]

    Reply

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