In a continuing effort to forestall having public pension plans file 5500 forms that would allow for relevant disclosures and honest comparisons the CSLGE and NASRA jointly released a paper on how well the current patchwork system of governments reporting on themselves is working by cherry-picking examples from five systems:
- California State Teachers’ Retirement System (CalSTRS)
- Public Employee Retirement System of Idaho (PERSI)
- Maine Public Employees Retirement System (MainePERS)
- South Carolina Public Employee Benefit Authority (PEBA)
- Texas Municipal Retirement System (TMRS)
New Jersey (with that 37.5% funded ratio) was not one of the systems picked and, when comparing the commendable features listed for those five systems to what New Jersey does, for good reason.
The busy season is over and it’s time to catch up on some movies. The first, chosen randomly from my Dark Crimes collection, was Loretta Young and Barry Sullivan in Cause for Alarm from 1951. They had pensions back then as a reward for meritorious service but times have changed.
Session 606 at the Enrolled Actuaries meeting included an informative presentation on the experiences of three cities with defined benefit plans for their public employees who found themselves similarly situated:
- Not in Social Security so pensions vital;
- Escalating pension contributions; and
- Looking at Hybrid plans.
Using the session outline as a template here is how it played out for:
Much more on the 2017 Enrolled Actuaries meeting in the next week of blogs, including the situation with church plans and cities that tried going from DB to hybrid plans, but first a game-changer for me on interest rates.
406 – Current Events in Public Plan Funding Policy
April 04, 2017 11:00 AM – 12:30 PM
The Conference of Consulting Actuaries’ (CCA’s) Public Plans Community’s white paper “Actuarial Funding Policies and Practices for Public Pension Plans” has been a resource for actuaries for over two years. Many public sector retirement systems have implemented new funding policies based on actuarial principles similar to those in the white paper. Alternatively, an interpretation of financial economics on funding may look much more like private sector plan funding. Speakers discuss these different approaches, as well as how they may or may not align with the objectives of the plan sponsors.
In one corner, from parts unknown, it was Ed Bartholomew of Building Better Pensions espousing the Financial Economics position and his tag-team partner Bob North, former chief actuary for New York City where he pioneered the inclusion of alternate liability values (MVABO) in NYC actuarial reports and CAFRs.
Opposing them are the Actuarial Realists who are working public plan actuaries: Paul Angelo from California and Sherry Chan, the current New York City chief actuary who took Bob North’s MVABO numbers out of the NYC actuarial reports.
Let’s get ready to rumble:
Defined Benefit plans in the public sector are a disaster as the actuarial/political cabal has consistently undervalued their costs to the point now where defaults are inevitable – which is something unions representing public employees do not want to hear so they use a good chunk of their members’ dues to create an alternative reality.
Pension Obligation Bonds (POB) are a stupid idea sold to desperate governments looking to camouflage debt for a few years rather than dealing with it. They are not solutions to but rather portents of either public pension defaults or government bankruptcies.
The ProPublica website has a handy chart on the 20 largest POB issues since 1996 with the warning:
Governments that borrow money to fund their pensions often pay less into their pension funds in future years than they’re supposed to. That can leave the funds in a worse shape than they were when the debt was sold, even if the pensions earn more on the borrowed money than taxpayers owe in interest.
Standish condensed the chart for their POB paper and it looks like this:
It is no coincidence that the worst funded public pension systems (NJ, IL, CT, PR) all tried the POB gambit not because it made any fiscal sense but because they chose not to look at immediately unpleasant alternatives (i.e. cutting benefits or affording honest contribution amounts).
The POB money suddenly appeared in trust assets making the plans seem better funded which would theoretically reduce future contributions. In practice, in New Jersey at least, future contributions were reduced anyway as politicians simply chose to pick their contribution numbers with expediency as the primary determinate.
A look at the 1997 Official Statement for New Jersey’s POB sale lists the costs: