Posts Tagged ‘pensions’

Rolling Stone Covering Public Pensions

Miley Cyrus gets nude in the current issue of Rolling Stone which also includes an article by Matt Taibbi:

Looting the Pension Funds All across America,
Wall Street is grabbing money meant for public workers

I bought the magazine and read the Taibbi story but now I’m considering reading about Miley Cyrus’ drug use since there’s a better chance it contains more useful information on public pensions than Taibbi’s hit-piece.

Don’t Frighten the Children (about Illinois Pensions)

Illinois public pension plans are in critical financial condition and were benefits valued using reasonable assumptions the picture would be even worse.  So what is Illinois doing about this?  Last summer the state hired an outside actuarial firm to “review assumptions and valuations prepared by actuaries retained by the boards of trustees of the State-funded retirement systems….and…recommend changes.”

Recently released was their work product, all 190 pages, though only these three pages are likely to be read and only this line likely to be publicized:

“Cheiron reviewed the actuarial assumptions used in each of the five systems’ actuarial valuations and concluded that they were reasonable.”

Which is what they were paid to conclude. However though Cheiron avers that “the interest rate assumptions for each of the five systems were reasonable at this time…..for three of the systems (TRS, SURS, and SERS), Cheiron recommended that the Boards consider lowering the interest rate assumption in the future.”

Those interest rates are: TRS – 8%; SURS – 7.75%; SERS: 7.75%;
The others: JRS: 7%; GARS: 7%

Though most people aren’t qualified (or inclined) to read through the report and argue actuarial concepts, there are some obvious questions that would give even a child* pause:

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Are Public Pensions Lying About Assets Too?

Public pension systems are understating the value of liabilities for benefits accruing in their plans primarily by using ridiculously high investment assumptions resulting, in the case of New Jersey, in reported liabilities of $124 billion when they really are $186 billion ($214 billion if COLAs return).  But there seems to be chicanery on the asset side of the ledger as well – aside from using a fictional ‘actuarial’ value that always seems to be higher than the market value.

In today’s New York Times there is a story about South Carolina’s retirement system investing half of its money in alternative investments on the recommendation of their former investment chief, a civil servant who made half-a-million dollars a year, drove a Lamborghini, and didn’t put a lot in his calendar.   I looked at the latest valuation report for the South Carolina plan and…….

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Public Employee Unions Can’t Win This Way

“It isn’t lost on us that the one commonality in Wisconsin, San Diego and San Jose is that we were considerably outspent.  You have politicians conspiring with corporations to take away pensions from workers.” Steven Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees. quoted in a New York Times article.

Mr. Kreisberg is correct (except for one word*) but the generous pension and retiree health benefits that unions have historically won for their members through political influence are now obviously unaffordable** and cannot be sustained by buying more political favors and deluding more voters.  There is a better way – maybe the only way – and it involves a radical change of course.

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To Our Valued Fund Members:

Public pensions as constituted in most states are unsustainable for a variety of reasons previously laid out in this blog and a very few other places.  The combination of generous benefits, willful underfunding, and the failure of the actuarial profession to tell the truth will bring bankruptcy to these plans (though they apparently will call it ‘restructuring’) and public pension participants may one day get a letter that begins:.

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Josh Rauh Rantings

Much more to follow especially after this afternoon’s four-hour seminar on Public Pensions but, for now, here’s a tidbit from this morning’s workshop on Public Employee Retirement Systems.

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Get Another Opinion GAO

The Government Accountability Office released a generally upbeat report on State and Local Government Pension Plans titled

Economic Downturn Spurs Efforts to Address Costs and Sustainability

finding that “despite the recent economic downturn, most large state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more.”

Though there was no new information it was good to see the data collected in one place and there were some useful charts (page 11 showing the historical trend of trust assets to expenditures – 12.2 in 2009 – and page 19 on state plan changes).  My problem was with the reassuring conclusion of sustainability that was drawn, possibly because the GAO didn’t take into account, to put it bluntly:

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