Archive for the ‘Public Pensions – General’ Category

ALEC Has It At $5.9 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 290 state-administered pension plans and adjusting the discount rate from what was an average of about 7.37% last year to a ‘riskless’ rate that might be 2.49%.

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Predictable Surprises

In New Jersey Senate Democrats are breaking out the iMovie software (results below) to sell their version of VIP* while Chapter 20 of Sylvester J. Scheiber’s 2012 book The Predictable Surprise was on Public Pensions: The Good, the Bad and the Ugly and provided these takeaways:

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Warren Buffett On Pensions

Warren Buffett was on CNBC this week for two hours where he addressed a viewer question on the the pension crisis with much perspicacity:


Full interview with the pension part starting at 49:40 –

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2 (out of 3) New Governors Facing Pension Disasters

Bloomberg looked at what three new governors were planning to do about their respective state’s pension crisis, noting:

As far as the fiscal health of U.S. states is concerned, there’s Connecticut, Illinois and New Jersey, and then there’s the rest of the country. Each state has chronically underfunded pension plans, so much so that they have less than 50 percent of assets needed to meet future liabilities. They’re the only states with unanimous general-obligation bond grades below double-A from the three biggest credit-rating companies. They pay noticeably more to borrow than their neighbors.

Illinois wants to borrow. Connecticut wants to have municipalities pay. New Jersey’s plan?

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U.S. Public Pension Plan Contribution Analysis

The Society of Actuaries (SOA) just released a study comparing pension plan contributions to benchmarks that represent contribution levels needed to reduce unfunded liabilities of state-based and large-city public pension plans in the U.S. Key observations over 2003–2017 include:

  • Most of the plans studied received insufficient contributions to reduce their unfunded liabilities. In 2003, while still feeling the impact of the dot-com market crash, 55% of plans received insufficient contributions to reduce their unfunded liabilities. After reeling from 2008 market crash, the percentage of such plans peaked at 84% in 2011 before falling to about 63% for 2016 and 2017.
  • Some plans received insufficient contributions to reduce unfunded liabilities measured as a dollar amount but received sufficient contributions to reduce unfunded liabilities measured as a percent of payroll. The percentage of plans in this group increased from 36% in 2003 to 77% in 2017.
  • However, of plans whose contributions did not reduce unfunded liabilities as a dollar amount, more than half also fell short of the plans’ Actuarially Determined Contributions (ADC) or other target contributions. This suggests that the process for determining such plans’ contributions may not align with the plan’s funding policy.

It is that last sentence that may be the most radical statement EVER to come out of the SOA (if I’m interpreting it right).

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Public Plans Get a Table

The first mortality tables specifically for public-sector pension plans — identifying teachers as likely the largest public pension obligation cohort — are reported to be out and actuaries like it:

The new tables are welcome, said Kevin Woodrich, a principal consulting actuary with Cheiron Inc. in Charlotte, N.C., because the significant amount of information allows public plan officials to dissect by job category.

“How different are (public plans) from the private sector, and within the public sector? It gave us the ability to produce that kind of table. It is important because now (public plan officials) can use it as a benchmark comparing to other public plans,” said Mr. Woodrich, who served on the SOA Retirement Plans Experience Committee producing the tables.

“It also allows plans the ability to use a variation tailored to their actual experience. In the past, they may have had to rely on tables based on private-sector data,” Mr. Woodrich said.

The Society of Actuaries (SOA) released the new table last month after an “exposure draft of the mortality tables was released to industry stakeholders for feedback in the fall of 2018.”

Officially known as the Pub-2010 Public Retirement Plans Mortality Tables Report, it is the first look at public-sector mortality distinct from the private sector. The findings are based on the experience of 35 public systems covering 78 retirement plans between 2008 and 2013, broken down by three job categories: general employees, public safety employees and teachers.

So why do public plans really need their own table?

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Illinois’ Pension COLA Buyout

When New Jersey wanted to cut the value of public retiree benefits they simply eliminated cost-of-living-adjustments (COLA) on pensions trusting that the courts would go along (as they did). Apparently Illinois can’t make these arbitrary cuts so they need a plan. Last year they came with one:

For retiring Tier I members, they have an option to have their automatic annual increases calculated at 1.5 percent in exchange for an accelerated pension benefit payment equal to 70 percent of what that difference would be in the life of the value of their pension benefit.

Buyout participation rates have been higher than expected:

Since it launched in December, at least 200 new retirees took the deal, more than expected. [Executive Secretary for Illinois’ State Employees Retirement System Tim] Blair says their buyouts have ranged between $80 and $100,000. The program is designed to save the state about $380 million per year. Neighboring Missouri introduced a similar program for their state employees in 2017. Blair says about 22 percent of retirees there took the buyout, which formed the basis of savings estimates for buyouts in Illinois, which are more generous by comparison. Missouri offers a 60 percent match while Illinois is offering 70 percent.

Looking at a numerical example there is a good reason public retirees like the program.

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