Political vs. Fewl Numbers

When Citrus Pest Control District No. 2 decided last year to leave the California Pubic Employee Retirement System (Calpers) they got a sour surprise.

It turns out that Calpers, which managed the little pension plan, keeps two sets of books: the officially stated numbers, and another set that reflects the “market value” of the pensions that people have earned. The second number is not publicly disclosed. And it typically paints a much more troubling picture, according to people who follow the money.


The two competing ways of valuing a pension fund are often called the actuarial approach (which is geared toward helping employers plan stable annual budgets, as opposed to measuring assets and liabilities), and the market approach, which reflects more hard-nosed math.

For those involved  with multemployer (union) plans this is nothing new since when a participating employer looks to leave a union plan they have to cope with another surprise – withdrawal liability – which is calculated using actuarial assumptions that inflate benefit values (rather than those used for funding which are designed to accommodate what is available to deposit) so as to squeeze as much money as possible from those leaving.

However it is the naming of these two methods that is confusing.  Both are ‘actuarial’ as they involve interest rates and mortality tables and both involve ‘market’ principles as it suits their purposes.

So I propose more appropriate names for low-ball and high-ball estimates of pension liabilities…..

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FE2 – Preserving Intergenerational Equity

Our analysis seeks to maximize efficiency and preserve intergenerational equity.

That was the second paragraph and it made it difficult to read the rest.

New Jersey Policy Perspective (NJPP) released a report yesterday citing nine bad decisions made over the last quarter century by Republican governors and the courts that brought New Jersey to this bankrupt state which they teased with a youtube:

and this introduction:

Nine key decisions have driven this downward spiral. Both major political parties and all three government branches contributed to the failure. Behind each decision were two unstated assumptions: that policymakers can promise essential services without bothering to pay for them, and that future taxpayers should bear the burden for today’s spending even though they will not benefit from it. At the heart of this duplicity is the intentional, systematic and large-scale raid by governors and legislatures of both parties of the assets that had been set aside for the funding of pensions and retiree health benefits for hundreds of thousands of public employees. The New Jersey Supreme Court abetted this massive, fraudulent raid.

The NJPP report fingers some of the villains (if you do a search the word ‘Florio’ does not come up and ‘Corzine’ is only a footnote) who brought us from this:

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FE1-Lay Translation

I read the August and most of the November working papers and plan additional blogs on several aspects of them that I found confusing, wrong, or insightful but for now, in bullet form, this is how I would present the authors’ thesis to laypeople:

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Second Financial Economics Paper Out

It’s getting ugly……

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Financial Economics Paper Out

After originally suppressing the release of ‘Financial Economics Principles Applied to Public Pension Plans’ and disbanding the task force that developed it, the actuarial establishment has relented, but with a consumer warning:

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Breaking News: Eighth Union Plan files

On August 17, 2016 trustees of the United Furniture Workers Pension Fund A out of Nashville, TN became the eighth multiemployer (union) plan to file for benefit cuts under MPRA in an attempt to avoid insolvency.

From their latest 5500 form here is the plan’s relevant data:

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Pension Bank of NJ

Phil Murphy, the only declared 2017 Democratic candidate for governor of New Jersey, in 2005 chaired a task force that looked for solutions to the state’s, at the time, $12.1 billion pension problem.  It came up with a report urging less gaming of the system and these major fixes:

  • No More Pension Holidays— State and local government must meet their full obligation to make annual payments to the pension plans.
  • No More Actuarial and Valuation Gimmicks— State government must use consistent and generally accepted actuarial standards.
Outside of a few tweaks that might have upset some crossing guards nothing was done of any significance and the pension deficit increased fourfold officially and twenty-fold in real life. But, rather than revisit the recommendations of 2005 with some seriousness, Phil Murphy has taken on the New Jersey politician’s approach to problem solving in recent years:
Present an idea that sounds good to anyone who won’t think about it in any depth to people who are not going to think about it in any depth.

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