The Public Broadcasting Service (PBS) has recently been doing a series on public pensions in peril which seems to have kicked off around the time that Fox Business began their Pension Crisis: The Gathering Storm series. PBS put up an infographic, looked at a global perspective, and focused on Illinois and California providing valuable coverage of the next major bust (which will be on a scale that will dwarf the predatory lending fiasco of the last decade). However the series will end because the funder has been linked to an agenda (which presumably anyone who funds or advertises on public media needs to be devoid of).
Posts Tagged ‘crisis’
Professor Joshua Rauh moderated a webinar on the public pension crisis that covered many bases and is well worth watching all the way through:
but for those interested in the role actuaries play here are some excerpts:
You really need to be a pension actuary to grasp the full scope of the public pension tsunami about to strike but, even to civilians, the undertow is palpable – so they react.
In the private sector we have Morningstar, Inc., a leading provider of independent investment research, today publishing a report, “The State of State Pension Plans: A Deep Dive into Shortfalls and Surpluses,” analyzing current data for pension plans administered by all 50 states. According to an article in Yahoo Finance:
“Our analysis of the fiscal health of state pension plan systems across the country found that creditworthiness varies greatly and is heavily dependent on the funded ratio and the unfunded liability per capita—we look at both key metrics to evaluate each state’s system. We find the UAAL metric useful because it represents the burden on residents, though it isn’t widely used in the industry as an evaluation tool,” said Rachel Barkley, municipal credit analyst for Morningstar. “Not only do state pension plan systems represent the state’s financial obligations, but they are often structured as umbrella plans that also cover employees in the state’s local government bodies. Because pension liabilities represent significant long-term obligations for government entities, pensions are an important element in determining a municipal entity’s credit quality.”
Jeff Westergaard, Morningstar’s director of municipal analytics, added, “We’ve heard much discourse on the subject of pensions over the last few years, resulting in more confusion than clarity on how to view this important area of municipal finance. Our hope is that Morningstar’s analysis will help cut through the clutter and offer logical, clear analysis for investors to understand each state’s situation and the broader implications of their pension system’s financial status.”
Yes it’s a crisis and this private company takes it seriously and has undertaken a project to gather data and educate stakeholders with the goal of seeking solutions. Contrast that to the public sector where coincidentally the state which Morningstar said has the weakest-funded system, with a 43.4 percent funded ratio and a liability of $6,505 per resident recently came up with their own initiative:
I attended most of the program today at Rutgers-Newark that was billed as answering questions as to whether “New Jersey has solved the Pension & Retirement Health Benefit Problem” and “What was actually accomplished & what is facing other governments”.
For me those questions were not answered which is odd because the answer to one of them would have been one simple two-letter word. However, two questions did occur to me during the course of the program, one of which I actually voiced.
The global pension crisis has revealed the need to rethink fundamentally how pension systems are regulated. It has also made clear a systemic failure of the actuarial profession.
Since the 1970s, most actuaries have developed and come to rely on models that disregard key factors – including political whims, longer life expectancies, and lower investment returns when liquidity is paramount – that drive outcomes in asset and other markets. It is obvious, even to the casual observer, that these models fail to account for the actual evolution of the real-world economy. Moreover, the current fee-generating agenda has largely crowded out research on the inherent causes of the pension crises. There has also been little exploration of early indicators of systemic crisis and potential ways to prevent this malady from developing. In fact, if one browses through the academic actuarial literature, “systemic crisis” seems to be an otherworldly event, absent from actuarial models. Most models, by design, offer no immediate handle on how to think about or deal with this recurring phenomenon. In our hour of greatest need, societies around the world are left to grope in the dark without a theory. That, to us, is a systemic failure of the actuarial profession.