Posts Tagged ‘report’

Most Generous New Jersey Pension

In one of the sillier broadsides in the propaganda war over the worth of a New Jersey public pension a ‘think’ tank probably funded by unions released a report today claiming that New Jersey’s non-public-safety plans “rank 95th in pension generosity out of 100 top plans nationally” based on criteria they made up:

To rank each pension plan’s overall generosity, we first compare our 100 largest state pension plans on three separate measures of pension generosity:
  • The strength of their automatic inflation protection (assuming 2.5 percent inflation).
  • The amount by which pensions increase with each additional year of public service as a percentage of “final average salary,” an amount commonly referred to as “the multiplier.” (Final average salary is usually calculated as the average salary over the final three or five years of an individual’s public service.)
  • The amount employees contribute to their own pensions. When employees contribute less, we consider their pension more generous.
Overall generosity is determined by giving each pension plan a score out of 100 based on its rank on these three separate dimensions of pension generosity. A pension plan ranked first on one of the dimensions receives 100 points, a pension plan ranked 100threceives one point. Adding up the three ranks generates the plan’s overall generosity score. The 1st-place-ranked and most generous pension plan received an overall score of 225.5. The least generous pension plan by far, with a score of 24.5,covers municipal employees in California’s Contra Costa County. The pension plan ranked 99th, the New Hampshire Retirement System, received an overall generosity score of 74.5, not far below New Jersey’s 85.
Using their criteria I can easily design a plan that would rank in the top 5 in generosity without costing taxpayers a dime.

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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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The Full Milliman Report

As requested by Detroit COO Chris Brown, Milliman, Inc. began an “analysis of the City of Detroit’s actuarial liabilities in support of the City and Financial Advisory Board (“FAB”). ”  They sent Mr. Brown a ten page letter on July 6, 2012 which, after some Very Rough Preliminary Guesstimates (VRPG), put the unfunded pension liability at $5.6 billion and the liability for retiree health care at $6.6 billion ($3.1 billion for DGRS and $3.5 billion for PFRS).

In prior blogs I reviewed how they arrived at their pension numbers in some detail.  The rest of the letter is a warning that GASB has some ideas that would further inflate that pension underfunding number and another VRPG on the value of retiree health benefits.

Please review the letter and tell me what strikes you.  For me there’s just this one other thing to note.

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Milliman’s Detroit Report

The report, dated July 6, 2012, is ten pages long and it is the justification Detroit is trying to sell to its creditors and pensioners that their pension funds are severely underfunded.  I have the report but on the bottom of each page appears this safety warning:

This analysis was prepared solely to provide assistance to the City of Detroit.  Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.  Milliman recommends that any third party recipient of this analysis be aided by its own actuary or other qualified professional when reviewing the Milliman analysis.

Obviously this is for the protection of certain stakeholders who might be inclined to conclusions that are too correct.  So I have decided to walk you through aspects of the report on a daily basis before springing it all on you.

First up, Milliman took the June 30, 2010 official valuations prepared by Gabriel Roeder Smith & Company (GRS) and applied a methodology similar to what I have been doing to arrive at what, in the case of Detroit, they believe to be the real funded status of the two main plans.

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First, let’s kill all the actuaries

From “The Clash of Generations” by Laurence J. Kotlikoff and Scott Burns, page 4:

Second, we’ll suggest that Shakespeare had it wrong when he said, “The first thing we do, let’s kill all the lawyers.” The right statement is, “The first thing we do, let’s kill all the accountants.”  Government accountants have concealed Uncle Sam’s Ponzi scheme since its inception by focusing attention on the official debt.  But they knew, or should have known, as a matter of economic theory, that official debt is a figment of our language, not a meaningful measure of our fiscal affairs.  As a result, they’ve made sure, with the help of the politicians, that the public (and most economists) would ignore the rapidly metastasizing economic tumor associated with our living beyond our children’s means.

In referring to the Social Security/Medicare Ponzi scheme the authors could have easily wished bloody annihilation upon actuaries as accountants.

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Why Public Employee Unions Love Collective Bargaining

They own the table.

Perhaps it’s more obvious in Union County with less citizen oversight and solid one-party rule but here the governing body openly roots for greater benefits for their staff (even when they’re not family members).  For example, in February of this year Union County fully subsidized retiree health insurance for future non-union retirees (they had been 41% subsidized) with the rationale that those employees had forgone raises for a couple of years.  They gladly accepted an actuarial study showing a correlation between providing this $102 million benefit and the forgone raises.  This is the county’s negotiator:

On page 8 of the study Mr. Salemme refers to there is a spreadsheet showing savings for one year’s worth of salary increase forgone.  The second column starts with the number $968,375.45 (even extending to the penny for the appearance of exactness) which represents 3% of the average salaries of the 541 employees impacted.  The rest of the column simply multiplies that first number by 1.03 finally getting to $2,027,563.14 in year 25.  The third column accumulates the numbers to arrive at a ‘savings’ of $52,716,641.74 which is being touted as the total savings over 25 years of forgoing that 3% raise in 2011.  Total bullshit.

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