Posts Tagged ‘funding’

Abnormal Costs

In theory if you are putting away enough to cover benefits accrued during the year and paying off any past liabilities over some period of time (30 years in NJ) then your unfunded liability should be going down and your funded ratio going up.  That’s not the case for New Jersey pension plans and it will not be the case when the July 1, 2013 valuation reports are released this coming week.

As of July 1, 2012 the unfunded was reported to have increased to $47.2 billion from $41.7 billion as of July 1, 2011 with the funded ration dropping from 67.5% to 64.5%.  This year those numbers will likely be $52 billion (as already leaked) and around 61%.  Is this an anomaly?

No, it is by design.  Public pension funding is all about getting the contribution as low as possible and a primary tool is the funding method (per the valuation report):

The Projected Unit Credit Method was used as required by Chapter 62, P.L. 1994 as modified by Chapters 115, P.L. 1997 and 133, P.L. 2001.

Logically straight Unit Credit should be used since that values benefits accrued during the year but PUC has the advantage of developing much lower current-year contribution (if interested here is a brief powerpoint explanation) but in the case of New Jersey it also develops some bizarre Normal Costs.

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SOA Panel States the Obvious – Though Not to Everyone

The New York Times reported today that a “blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.”

Basically the report made four very sensible recommendations that most citizens would be amazed had to even be recommended.  Anyone without ulterior motives should have no problem agreeing with three of them:

  • a plan’s funding goal should always be 100 percent
  • disclosure of a “standardized plan contribution” that would be calculated by all plans using the same discount rate and funding methodology
  • not using funding instruments that delay cash contributions (i.e. Pension Obligation Bonds)

Then there is the tricky, though no less valid, recommendation:

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After the ARC

I attended the Enrolled Actuaries’ conference this week and never has the gulf between private and public plan actuaries been so wide.

In the private sector we have no discretion and only rules, sillier than ever*, to regurgitate onto valuation reports.  For funding, we are told what method and mortality table to use and have a severely limited choice of interest rates.

Public plan actuaries, on the other hand, will soon have no funding rules other than the ones they come up with and the Society of Actuaries is asking for suggestions.

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Politics trumps pension reform in New Jersey….again

The headlines blare:

N.J towns to save $267M in pension costs thanks to new law

when they should blare:

N.J. towns get another way to avoid paying pension costs thanks to a bunch of idiots making pension policy and a bigger bunch of idiots who take them seriously

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Pensions as the real issue in NBA Lockout

If it were about revenue sharing or a luxury tax we could expect to see professional basketball soon since those issues are negotiable.

But it’s not.  It’s about pensions and unfunded liabilities that over the term of the new CBA will bankrupt either the league or the teams that have to pay withdrawal liability.

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