Archive for the ‘Public Pensions – General’ Category

Criminalizing Pension ‘Holidays’

The law that will transfer the running of the Police and Firemen’s Retirement System in New Jersey to the participants/unions provides this enforcement mechanism for getting governments to pay:

If payment of the full required amount of the employer’s obligation is not made within 30 days of the due date dates established by this act, interest at the rate of 10% per annum shall commence to run against the unpaid balance thereof on the first day after such 30th day. Upon certification by the board of trustees to the Director of the Division of Local Government Services in the Department of Community Affairs of an employer contribution payment being 30 days past due, the director shall withhold any State aid payments that are disbursed by the Division of Local Government Services from the employer in an amount equal to the amount of the employer contribution due to the board. If the employer is eligible for transitional aid, the Division of Local Government Services shall consult with the board to develop a payment plan to ensure that the required payment and interest owed is paid in a timely manner. The director shall release the State aid payments held pursuant to this subsection to the employer upon certification by the board of trustees of its receipt of the delinquent employer contribution. Nothing in P.L. , c. (pending before the Legislature as this bill) shall relieve State or local government employers of any present or future obligations of their normal cost or unfunded liabilities required to be paid into the retirement system. (page 37)

The unions see this as necessary since many governments have a history of nonpayment.

West Virginia is planning to go a step further:
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Wirepoints Special Report

Ted Dabrowski and John Klingner at Wirepoints analyzed pension data as compiled by Pew Charitable Trusts from 2003 through 2015 to come up with a report asserting that “too little money into pensions hasn’t been the issue. Instead, it’s the dramatic growth in pension benefits promised by politicians that’s been bankrupting Illinois.”

Unfortunately for the authors they were unable to claim that Illinois had raised benefits more than any other state or had negative asset growth, primarily because of the existence of New Jersey.

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The American Legislative Exchange Council (ALEC) came out with a report last month based on their review of the latest available actuarial valuations of more than 280 state-administered pension plans and adjusting the discount rate from an average of about 7.37% to a ‘riskless’ rate of of 2.142%. Unfunded liabilities came in at $6 trillion.

Today the National Association of State Retirement Administrators (NASRA) rejected ALECs report, saying its findings contain “serious flaws.”

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New Tax Law and Unfunded Pensions

Robert C. Pozen had a piece in Marketwatch warning:

Unless states can implement effective ways to circumvent the SALT restriction, they will face much higher political barriers to meeting their unfunded benefit obligations through increased tax revenues. Instead, states will be forced to severely cut spending on public services and/or adopt major reforms of their benefit plans.

The story included a table of the four worst state pension systems with calculations of how much revenues would need to increase or spending would need to be cut in order to close each state’s funding gap. New Jersey had by far the largest percentages:

After dismissing any of these options as unworkable the author settles on:

In short, the new federal restriction on SALT deductions will open up a new window on reforming state benefit plans with large unfunded liabilities. As voters absorb the financial implications of the new restriction, they will probably oppose tax increases and service cuts to deal with these liabilities. Instead, they will pressure elected officials to renegotiate benefit plans to the extent legally permissible.

There are a few quibbles I have with this position based primarily on my experience observing how a local government operates.

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Funded Status of Local Pensions per CSLGE

Based on an analysis of 130 of the country’s larger local jurisdictions, the Center for State and Local Government Excellence (CSLGE) released a brief finding that “as of 2015, local plans have an aggregate funded ratio of 69.9%, relative to 73.9% for state plans – a difference that has been closing in recent years. Also, these local plans contributed 83% of their required contributions in 2015, relative to 76% for state plans, when adjusted to account for a more conservative cost payment approach. The authors suggest that these variances between state and local plans are possibly linked to differences in aggregate investment approaches and funding methods, respectively.”

Nothing alarming here but that might have more to do with CSLGE’s funding than those of the plans.
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ALEC Has It At $6 Trillion*

The American Legislative Exchange Council (ALEC) came out with a report this week based on reviewing the latest available actuarial valuations of more than 280 state-administered pension plans and adjusting the discount rate from an average of about 7.37% to a ‘riskless’ rate of of 2.142%.

I disagree with the methodology since I believe the funded status of a particular plan should be considered when adjusting the wishful discount rates that the plan actuaries who politicians hire are ‘encouraged’ to use.  That is, a plan closer to full funding should be able to use a rate closer to that 7.37% while a pure pay-go plan (Puerto Rico) should use a rate closer to 0% since that is about what they are getting for the few days any money stays in the trust.

Nevertheless there were some nice charts ranking states by Funded Ratio, Unfunded Liabilities, and Unfunded Liabilities Per Capita.  However, I did not see where they had the underlying data so, based on those charts, I decided to extract some other numbers.

Here is the spreadsheet sorted by state and totaled which yields:

  • Total Accrued Liabilities: $9.08 trillion
  • Total Assets: $3.06 trillion
  • Unfunded Liabilities: $6.02 trillion
  • Average Funded Ratio: 33.7%
  • Average Unfunded Per Capita: $18,676
  • US Population: 322.4 million




* Basically slight rewording with link and spreadsheet updates from a blog last year.

Fitch Rates State Pensions

So which state has the highest pension burden among all 50 states?

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