Archive for the ‘Actuarial Math’ Category

Why Aren’t 100% ARC-Payers 100% Funded?

A good question that meep asks in a recent blog piece.

Having pulled together pension data on Union County participants in the the New Jersey Police and Fire (PFRS) and Public Employee (PERS) Retirement Systems where the local governments do have to put in 100% of their Annual Required Contribution (ARC) an answer emerges.

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No Good News on NJ Pension Cash Flow

Some view as good news that New Jersey has deigned to put in 50% of the calculated ‘required’ contribution this fiscal year for the portion of the retirement system the state is ‘responsible’ for funding. Aside from the fact that (1) the state can still renege on this ‘commitment’ whenever they want and (2) putting in 50% of what you owe means, by definition, that you are incurring additional debt there is the overarching issue that happens to be the primary focus of this blog: the political/actuarial cabal willfully understates contributions for public plans.

This becomes obvious when examining the portion of the New Jersey system for which the localities are ‘responsible’ (PFRS and PERS) to which they are supposed to be making 100% of ‘required’ contributions.

For the twenty-one municipalities in Union County and the county itself those bills for 2017 total $68,141,807 for PFRS and $27,701,995 for PERS. In addition, based on active participant information,  the employee contribution rate of 10% of salary for PFRS would generate $24,868,388 while 7.34% of salary for PERS would generate $14,397,484. That comes to about $135 million coming in for 2017 to fund benefits for Union County pension participants.

So how much is going out?

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Critical Data On Multiemployer Plans

Pensions & Investments covered it but no other media outlet seems to take the institutionalization of theft by government bureaucracy as newsworthy. The sad part is that the participants in the United Furniture Workers Pension Fund A are hardly alone. According to a spreadsheet created from 1,234 Schedule MB filings for 2015 there are 333 other multiemployer (union) plans with larger deficits.

The Pension Benefit Benefit Guaranty Corporation (PBGC) keeps track of troubled multiemployer plans and form 5500 filings have these MB actuarial certifications but you have to know what to look for. Here it is….

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Lottery Asset Lie

Governing calls it creative:

In New Jersey, the state is pledging its lottery — which an outside analysis determined was valued at $13.5 billion — as an asset to state pension funds. The action would reduce the pension system’s $49 billion unfunded liability and improve its funded ratio from 45 percent to about 60 percent, according to State Treasurer Ford Scudder.

It is also a gimmick testing the limits of stakeholder credulity.
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Mercatus Mushrooming Costs

Ranking states by fiscal condition, as the Mercatus Center has done for FY12, FY13, FY14, and now FY15 based on state data reports, gives us a clue as to what an apathetic public might owe for public pensions, retiree health care benefits (OPEBs), and regular debt but since factors for calculating the values of pensions and OPEBs are questionable (and likely understated) while repudiation is probable to varying degrees the public remains mostly in the dark there.

Whereas borrowing by states in the bond market is relatively transparent, benefit costs fall prey to the actuarial/political delusion machine resulting in this trend:

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Public Plans Data Takeaway: Bad Actuarial Assumptions

The numbers collected by the Public Plans Data people have the helpful features of an interactive data browser that goes back to 2001 from which we can compare the worst funded plans in 2001 when the total combined funded ratio was 102.02% for the 161 plans in the survey to the latest data (a combination of 2015 and 2016) for 170 plans with a total funded ratio of 74.33%.

There have been several sham explanations for this drop (market crashes, missed contributions) but this fifteen-year period has also seen extraordinary earnings growth (especially in alternative investments) with several public retirement systems actually cutting benefits and most governments putting in their full required contributions.

The real reason…..

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New Jersey Idiocracy

Along the same vein, if you obtain an asset that pays you $1 billion* annually but you have to pay out $1 billion annually to ‘own’ that asset then what is the value of that asset to you?

If you answered $13.535 billion you are as smart as a New Jersey legislator, governor, or media member who do not appear to have caught on to this scam.

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