In a format and with a level of transparency that public plan sponsors and the Center for State and Local Government Excellence (SLGE) are comfortable with. From an email sent out by SLGE this morning:
Pensions and Investments published SLGE President/CEO Elizabeth Kellar’s letter to the editor (August 22, 2016) explaining that free, accurate pension data is already available at www.publicplansdata.org. An earlier commentary had argued that there was no comprehensive public pension database and that Congress should pass legislation to require state and local governments to file an annual report with the U.S. Treasury.
For those without the online subscription to P&I here is that letter to the editor:
Dallas Cops’ Pension Fund Nears Insolvency In Wake Of Shady Real Estate Deals, FBI Raid
The Dallas Police & Fire Pension (DPFP), which covers nearly 10,000 police and firefighters, is on the verge of collapse as its board and the City of Dallas struggle to pitch benefit cuts to save the plan from complete failure. According the the National Real Estate Investor, DPFP was once applauded for it’s “diverse investment portfolio” but turns out it may have all been a fraud as the pension’s former real estate investment manager, CDK Realy Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%. Guess it’s pretty easy to generate good returns if you manage a book of illiquid assets that can be marked at your “discretion”.
To provide a little background, per the Dallas Morning News, Richard Tettamant served as the DPFP’s administrator for a couple of decades right up until he was forced out in June 2014. Starting in 2005, Tettamant oversaw a plan to “diversify” the pension into “hard assets” and away from the “risky” stock market…because there’s no risk if you don’t have to mark your book every day. By the time the “diversification” was complete, Tettamant had invested half of the DPFP’s assets in, effectively, the housing bubble. Investments included a $200mm luxury apartment building in Dallas, luxury Hawaiian homes, a tract of undeveloped land in the Arizona desert, Uruguayan timber, the American Idol production company and a resort in Napa.
Despite huge exposure to bubbly 2005/2006 vintage real estate investments, DPFP assets “performed” remarkably well throughout the “great recession.” But as it turns out, Tettamant’s “performance” was only as good as the illiquidity of his investments. We guess returns are easier to come by when you invest your whole book in illiquid, private assets and have “discretion” over how they’re valued.
Not unlike other public plans so anxious to justify 8% valuation interest rates that they invest pension money with anyone willing to tell them that’s what they are getting.
Though looking over their actuarial reports the Dallas Employees’ Retirement Fund is not much better.
Of the 154 state plans in our survey of actuarial reports 15 are exclusively for judges and these happen to provide the…
- best benefits ($75,694 average payout to retirees)
- smallest employee contributions (13.6% of deposits coming from employees with three plans – Alabama, Georgia, and North Carolina – not requiring any employee contributions), and
- aside from two particularly egregious outliers that account for 77% of the underfunding (yes the same two that always appear on these lists) the best funded state plans with nine having funded ratios over 90% and two (Delaware and Georgia) even overfunded.
The spreadshhet of judicial plans yields these sorted lists:
Chicago politicians are scraping together money to fund their public pension systems:
The police/fire deal, reached a year ago and included in this year’s city budget, required a $543 million property-tax hike. The deal since has been ratified by the Illinois General Assembly.
The deal with the laborers’ fund shifts to it $40 million a year in receipts from a tax on cell phones that originally had been allotted to other purposes.
Restructuring the municipal fund will require $239 million in additional water and sewer fees when fully implemented over five years.
The situation at CPS remains fluid. But the Board of Education next week is scheduled to consider a $253 million property-tax, and recently received authority to levy an additional $43-million-a-year hike that technically is for construction, but will free up other money in CPS’ budget for pensions.
The system will will need to find another $200 million or so for pensions, money it hopes to get by convincing teachers to pick up the 7 percent of salary they’re supposed to pay themselves, but which the board pays under a decades-old contract deal.
Add all of that up (excluding only the $200 million more that CPS needs to find) and you get $1.118 billion.
Will it be enough?
To get an idea we begin our review of actuarial reports of major city plans (as we did for 154 state plans) with Chicago where their actuarial reports depict the situation as:
Dividing the total annual payout by the number of retirees in 154 public plans as reported on their latest valuation reports puts these states in the top ten for average pension:
Which led me to wonder what the pension benefits for a union representing these employees looks like. As it turns out the average payout for a retiree in the New Jersey Education Association (NJEA) Retirement Plan is $51,305 ($13,647,219 for 266 retirees) which would top the list.
But what about only teacher plans? Many are consolidated with the main retirement system but there were 26 plans in our survey that indicated clearly that they were Teacher plans. Here is the summary of all the data on those plans and the state with the highest average Teacher pension (though not higher than the NJEA’s DB Plan) is…..
In the propaganda war over pensions in New Jersey manufacturing statistics is a sport:
New Jersey’s public employee pensions are not “exorbitant,” as Gov. Chris Christie has proclaimed, at least not compared with other plans across the country, asserts a new report by a progressive policy organization.
The report released earlier this month by New Jersey Policy Perspective does not compare average payments to retirees. It instead compares three other indicators — cost-of-living increases, the “multiplier” that calculates pensions per year of service, and employee contributions.
According to NJPP’s methodology, which drew on data from the National Association of State Retirement Administrators, New Jersey’s pension plans rank 95th out of the 100 largest pension plans in the nation. In other words, based on those criteria, 94 of those 100 pension plans are more generous than New Jersey’s.
Totally bogus and debunked here at the time but it does raise the question of which state does have the most generous benefits and comparing average payments to retirees IS an excellent measure. Since we now have the data on 154 state plans and some facility with Excel it can be done and the average for state plans* comes to $26,022. The state topping the list at $42,877:
Minneapolis was ranked by US News as the tenth most dangerous city in America. Minneapolis? Really? More dangerous than Newark, NJ?
Then earlier this month I was reading a book* that made the point that a major reason Minneapolis appeared so dangerous in the rankings was because they kept better crime statistics while other large cities were so out of control that many of their crimes went unreported.
So it seems with valuing liabilities for public pensions where a plan can have a low funded ratio in part because they are valuing their liabilities honestly while other plans look better because their liability numbers are understated. Has anyone ever questioned whether benefits are being costed properly for public plans? In the private sector it seems like PBGC checks every benefit calculation for every plan they cover but for public plans whatever the computer spits out is accepted as gospel.
But, since we went to the trouble of pulling off valuation data for 154 state plans, let’s take a stab at it.