Archive for the ‘Public Pensions – General’ Category

How bad is the state and local pension crisis really?

Last month the Brookings Institution looked into that question for which they came up with research paper and concluded ” on the whole, state and local pension systems in the U.S. are not facing in an imminent crisis.”

Some interesting charts interspersed with convenient naivete that allows them to arrive at their predetermined terminus (do nothing) follows.

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NIRS Seeking Purpose

Last week I noted the duplicity of a report released by the National Institute on Retirement Security (NIRS) looking to scare public plan sponsors away from moving employees from Defined Benefit to Defined Contribution plans. Today Jane the Actuary made a few more salient points concluding with:

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Examining the Experiences of States that Closed Pension Plans

The National Institute on Retirement Security (NIRS) was charged by their public employee union clients to come up with a report to try and scare states away from moving their employees from Defined Benefit to Defined Contribution plans. This is what they came up with and, after reviewing what presumably are the facts they want you to know, an honest interpretation arrives at exactly the opposite conclusion.

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State and Local Government Spending on Pensions

According to a USA Today story:

24/7 Wall St. reviewed annual pension fund contributions at the state and local level to identify the states that are spending the most to fund their residents’ retirement. States are ranked based on total 2017 pension fund contributions per current state and local government employment.

Since New Jersey was ranked only 14th worst I assumed that 24/7 Wall St. was missing something. After putting their data into a spreadsheet to see what they were using for total contributions, it turns out that they were.

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Downhill From Here

Among the things a day trip to Princeton brought me was this book on retirement insecurity with chapters on:

  1. Teamsters in Trouble (Central States and MPRA)
  2. White-Collar Damage (Verizon and United Airlines)
  3. Municipal Blues (Detroit)
  4. Gray Labor
  5. Two-Tiered Agreements and the Dilemmas of Gen X
  6. Retiring on Next to Nothing (Opelousas, LA)
  7. Keeping the Promise (Ogden, UT)

Though heavy on the anecdotal and leaves actuaries completely blameless there were some interesting passages including one stunner from page 100.

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Road Map to Rewriting Rules

Mary Wiliams Walsh in the New York Times looks at how the treatment of participants in Puerto Rico’s bankrupt public pension plan might impact on other states in similar circumstances.

In many ways, Puerto Rico’s collapse has been uncharted legal territory. It took an act of Congress in 2016 to create the bankruptcy-like law, known as Promesa, that is being used to deal with the crisis.

That has turned Puerto Rico into something of a test case. Although cities and municipalities — most notably Detroit in 2013 — have declared bankruptcy, states are not eligible to do so. But a number of them are dealing with serious financial problems because of pension costs.

A combination of inadequate funding over the decades, a wave of retiring baby boomers and the lingering effects of the 2008 financial crisis has forced states to reduce benefits, increase funding or both. But a few states — including Illinois, New Jersey, Kentucky, Connecticut and Colorado — are still far behind, and more drastic measures may be tempting if Puerto Rico can provide a road map to recovery.

If Puerto Rico is allowed to pay much less to its bondholders than its pensioners then it would be bondholders who would have the road map when they write the rules that apply to states like New Jersey in a few years.

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ASOP Cover

According to Wikipedia:

The [American] Academy [of Actuaries (AAA)], in 1988, created the Actuarial Standards Board (ASB) as an independent entity, supported by AAA staff. The ASB serves as the single board promulgating standards of practice for the entire actuarial profession in the United States. The ASB was given sole authority to develop, obtain comment upon, revise, and adopt standards of practice for the actuarial profession.

They call these rules Actuarial Standards of Practice (ASOPs) and the ASB just came out with their second exposure drafts on two of them having to do with the selection for measuring pension obligations of:

  • Economic Assumptions (ASOP 27), and
  • Demographic and Other Noneconomic Assumptions (ASOP 35)

It makes for interesting reading since, in real life, the assumptions that significantly impact on contributions (mortality and interest rate) are promulgated by either the government (private plans) or politicians (public plans) and both ASOPs, if they are supposed to provide guidance to pension actuaries, could consist of the line:

Do what you’re told.

But what if you’re told to do something stupid? Do you have an obligation to say anything? It looks like you do if the entity telling you to do something stupid also sponsors the plan.
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