Defined Benefit retirement systems across the country are all severely underfunded because an actuarial/political cabal has allowed Generally Asinine Approaches to Payments to pass for Generally Accepted Actuarial Principles. Now even the lowball contribution ‘requirements’ these methods are yielding have become onerous obligations for governments unprepared to actually pay for the promises they might have thought they could afford. Which leads to some desperate measures:
Archive for the ‘Public Pensions – General’ Category
The Mercatus Center just sent out an email announcing:
The 2016 edition of “Ranking the States by Fiscal Condition” is now available, providing the most comprehensive snapshot to date of the financial health of all 50 states and Puerto Rico. What’s the big news from the latest numbers? Puerto Rico is in trouble, and so are many states if they don’t address their short- and long-term obligations. The rankings reflect the past, present, and future of each state, beyond what one individual politician can control. They serve as an early warning sign for policymakers, journalists, and the public before fiscal issues become bigger problems.
Data was taken from 2014 CAFRs and the Mercatus people were good enough to provide excel spreadsheets that included unfunded pension and OPEB liabilities along with regular state debt. Totaling those into spreadsheets shows that indeed there are states with higher per-capita long-term debt burdens than Puerto Rico (and Illinois is not one of them).
From the amazon.com description:
Richard Ravitch, former lieutenant governor of New York, writes the Foreword and Robert P. Inman and Susan M. Wachter provide the Conclusion. The book’s three chapters examine the issue from different key perspectives: Joshua D. Rauh, a leading scholar in the study of unfunded pension liabilities, provides an economist’s perspective; Amy B. Monahan, a renowned authority in public employee benefits law, illuminates the legal framework; and D. Roderick Kiewiet and Mathew D. McCubbins, visionary political scientists, put the crisis and its economic and legal implications into context and lay out the necessary framework for reform.
Some useful excerpts:
No EA sessions are recorded. As a condition of your attendance at the meeting, you agree not to audio or video record any portion of the educational sessions held at the meeting. Any violation of this condition may result in your ejection from the meeting without a refund of your registration fee. In addition, you agree that the CCA shall be entitled to any costs incurred as a result of any violation of this provision, including payment of CCA’s attorneys’ fees. Violators may be prohibited from attending future meetings/events.
This might speed things up a bit since moderators can replace the ubiquitous opening announcement:
This session is being recorded. If you have a question please come to the microphone or it will not be on the tape. Please identify yourself and speak clearly. Your opinions will considered your own and will not represent the opinions of your employer or the government agency you work for. Recordings of individual sessions can be purchased separately or together after the meeting.
Is John Bury in the room?
Among the conveniences that 41 years of holding these meetings has brought is that session handouts are online before the meeting so you can decide which sessions would be best to attend (ie. those least likely to spend their 90 minutes on reading the session handout off a screen).
An interesting one based on its title is Session 406: Ethical Dilemmas Public Plan Actuaries. I am not sure as to whether handouts are also supposed to be kept secret so I will make a précis of the four dilemmas up for discussion:
According to the NCTR anti-PEPTA hit piece:
Rauh advised Congressman Nunes when he was first developing PEPTA, and the Nunes materials contain Rauh’s projections. For example, Nunes/Rauh claim that seven states will run out of money before 2020, including Louisiana and Oklahoma in 2017. Furthermore, the Nunes materials state that these insolvency dates “are based on generous assumptions concerning the performance of pension plans and are likely the ‘best case scenario.’”
The only problem? If you check with your colleagues in Louisiana and Oklahoma, they will be happy to inform you that they are not going to completely deplete their pension assets by next year and have to make pension payments out of general revenues. In fact, as the Government Accountability Office (GAO)—an independent agency that provides Congress with audit, evaluation, and investigative services—said in a 2012 report, Rauh’s exhaustion dates were based on assumptions that it found to be “unsupported.” Indeed.
So how are Rauh’s run out predictions, made in 2009, working out?
According to the NCTR anti-PEPTA hit piece:
For a much more accurate understanding of these so-called “accounting gimmicks,” be sure to read “Understanding the Valuation of Public Pension Liabilities; Expected Cost versus Market Price,” by Paul Angelo, a well-respected senior vice president and actuary for Segal Consulting. In this article, Angelo expertly and very clearly explains how the current process used by public pension plans for measuring liabilities “imparts information about the issues that are most important to decision makers: the expected costs associated with funding promised benefits.” By comparison, the financial economists’ measures “are far less useful for public-sector plans because they are not designed to answer the critical questions facing policymakers, employers, and trustees related to the expected cost of current and future benefit obligations,” he writes.
So what does the Angelo paper tell us?