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  #951  
Old 01-02-2010, 11:10 PM
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  #952  
Old 01-03-2010, 08:53 AM
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Ah, I smell a big election year... a special stench that wafts in the air. It smells like breakfast.

Oh wait, that's just coffee.

So what's up in Ohio?
http://www.daytondailynews.com/news/...wComments=true

Quote:
Pension reform fight has makings of a war
System isn’t sustainable without some changes

COLUMBUS — Like it or not, lawmakers will be asked this year to overhaul the state’s public pension systems that serve 1.7 million Ohioans and cost local governments more than $4 billion a year.

It’ll be an epic struggle among powerful interest groups to determine how the burden of shoring up the pension systems is shared.

Teachers, cops and firefighters may be asked to work longer. Retirees will likely face higher medical costs. And taxpayers may be asked to chip in as much as $5 billion toward the pension systems, if lawmakers accept proposed increases from two of the state’s five public pension funds.

....
Still, some change is inevitable. Thanks to market losses, skyrocketing health care costs and baby boomer retirees living longer, nobody thinks the current system is sustainable without changes. The market has rebounded some, but investment portfolios from the five pension systems lost a staggering $56.6 billion in 2008.
http://www.daytondailynews.com/news/...wComments=true

Quote:
DAYTON — Based on current trends, Wright State University’s annual pension tab — currently $9.63 million — would rise to $11 million by 2013.

As Ohio’s economy continues to struggle, some government officials bristle at the cost of maintaining public pensions, which are all but untouchable in budget discussions.
But Ulliman said the payments are “the cost of doing business” for state colleges and universities.

Public institutions like Wright State pay 14 percent of faculty salaries to the State Teachers Retirement System (STRS) and the same percentage of staff and administrative salaries to the Ohio Public Employees Retirement System (OPERS).
....
The health of the STRS system has suffered due to the recession and higher health care costs. In September STRS proposed boosting the employer contribution from 14 percent to 16.5 percent over five years, starting in 2016. Universities are closely watching to see how the legislature responds to that request.
http://www.daytondailynews.com/news/...wComments=true

Quote:
Proposal to increase contribution to teacher pensions jeered
A Springboro school board member says ‘our community would be outraged’

After voters rejected four straight levies for new operating money, Springboro school officials cut wherever they could.
....
One area they couldn’t touch — the district’s employee pension funds for teachers and other staffers. State law forbids it. The funds are expensive, though — Springboro paid $2.8 million into the State Teachers Retirement System in 2008, and a little more than $1 million into the School Employees Retirement System.
....
Teachers currently pay 10 cents into their retirement fund for every dollar they earn, while the school district pays 14 cents. But as state leaders explore ways to keep Ohio’s five pension systems afloat amid faltering investments and a rough economy, STRS has proposed that both teachers and the districts that employ them increase their pension contributions by 5 percentage points — 2.5 more from teachers by 2016 and 2.5 more from the district by 2021. The proposal also calls for raising the retirement age.
....
“The community already feels we compensate every employee in our school system wonderfully; we’ve been very generous,” Kohls said. “To have the state tell us we have to contribute another 2.5 percent in a couple years, I think our community would be outraged and I think they would have every right to be.”

More about Ohio pension funds needing extra contributions when people have no money to spare
http://www.vindy.com/news/2010/jan/0...ues/?newswatch

Quote:
Locally, as pension funding rises, revenues decline

Valley governments paid $137M into funds in 2008.

The story in 2009 for most local governments and school boards in the Mahoning Valley was the same: Revenue streams are running dry. Layoffs are imminent. Cost-cutting is at a premium.

Those political subdivisions face uncertain financial futures, but one expense is still untouchable.

Pensions.

In 2008, municipalities in Mahoning, Trumbull and Columbiana counties paid more than $137 million into the five pension funds for public employees, and that number is expected to grow by more than $10 million in the next five years, according to an Ohio Newspaper Organization analysis of state data.

At the same time, the private-sector taxpayers who help fund the budgets find themselves reeling from the blow dealt by the recession of recent years.

Some private companies have sold off pensions, and retirees find themselves in limbo or, in some cases, without the benefits once promised to them.

But the decision-makers who deal in government budgets say increases to their contributions are unlikely. To make its projections, the Ohio newspaper study uses data from 2003 to 2008, which does not necessarily include the economic troubles that continued last year, they say.

Pension contributions are often a large proportion of the budgets for local governments and schools. For example, contributions to the Public Employee Retirement System accounted for 16 percent — about $10.8 million — of the Mahoning County government’s budget in 2008.
Well, we'll see how untouchable these benefits are.

Similar problems in the UK:
http://www.journallive.co.uk/north-e...1634-25509253/

Quote:
A MULTI-BILLION pound pensions black hole is set to deprive cash-strapped councils of vital investment as tax funds are used to guarantee golden retirement packages.

Next year town hall leaders across the North East will be asked to hand over millions of pounds more in order to ensure thousands of workers can retire on a good pension.

Local government pension costs have increased across the region by more than 1bn to around 2.6bn after the value of council’s pension investments were wiped out by the recession.

The level of the debt means councillors can either hand over more cash which should have been spent on regeneration and social services to the retirement fund or prepare massive cuts in pensions.

But any reduction to the pension fund would be almost impossible to carry out due to legal constraints and huge opposition among thousands of council staff.

Instead treasury officers have told their council boss they are legally obliged to divert cash to fill the gap, meaning money collected in council tax will be taken to cover increased contributions.
and Pittsburgh
http://www.pittsburghlive.com/x/pitt.../s_660495.html

Quote:
The next 12 months could make or break Mayor Luke Ravenstahl's next four years.

Ravenstahl's plan to lobby state lawmakers for $15 million in recurring revenue and squeeze $200 million out of a deal to privatize the city's parking garages and pump it into the municipal pension fund by the end of 2010 could jettison the city from state oversight or propel it deeper into dependency.
....

The pension fund has about one-third of the money it needs to cover an estimated $1 billion in obligations. The city needs to reach the 50 percent threshold to avoid a pension fund takeover by the state.
One third? That's not ominous.

Here comes the comic relief:
Quote:
Ravenstahl said he's "feeling good" entering the new year, despite his pre-Thanksgiving announcement he was separating from his wife Erin after five years of marriage.
I assume he's referring to his health. Because it doesn't sound like the city is doing that great, forget about his personal life.
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  #953  
Old 01-03-2010, 02:04 PM
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Mish has something to say about one of the Ohio stories
http://globaleconomicanalysis.blogsp...nd+Analysis%29

Quote:
Graft On Ohio Public Employees Retirement System Board

Take another look at the self-serving comment of Ken Thomas, a city of Dayton employee who chairs the Ohio Public Employees Retirement System board: “This isn’t just putting a new coat of paint on the house. This is re-doing the foundation.”

Clearly Thomas' statements are nothing but complete self-serving pomp. Adding two years to the eligibility of a full pension does not eliminate any structural problems. To re-do the foundation one would have to

1) Eliminate defined benefit pension plans
2) Lower the assumed benefits
3) Cap employer contributions
4) Make the plans accountable for pension assumptions, not taxpayers

The reason change is so difficult is

* Pompous clowns like Ken Thomas (acting in their own best interests) dominate pension boards
* Legislators unwilling to stand up to unions are on the public gravy train themselves
I am intrigued with item 4 ... how exactly could the plans be made accountable for pension assumptions?
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  #954  
Old 01-04-2010, 08:58 AM
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Quote:
Originally Posted by campbell View Post
Originally Posted by Wigmeister General
Quote:
Think unions.
That's nice, but they're going to be a little pissed off when they find there's not enough money to pay for the benefits they thought they were going to get.

They may thought they were being clever, in hiding the full costs of benefits, and believed the taxpayer can always be bled.... I guess that will be put to the test relatively soon.
I don't know about the public sector, but in the private sector the unions have their own actuarial consultants. They go into negotiations with a lot of information about cost estimates for whatever benefits they are asking for.
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  #955  
Old 01-04-2010, 11:29 AM
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Ah, when the feds get involved, it's more fun!
http://www.freep.com/article/2010010...roits-pensions

Quote:
Federal authorities are investigating several deals connected with Detroit's two public pensions, including some investments chronicled by the Free Press during the past year.

The U.S. Securities and Exchange Commission and a federal grand jury have requested records on at least two pension deals totaling $40 million.

Authorities also are asking questions about the pensions' investment adviser, Adrian Anderson of North Point Advisors, whose vetting of several deals that lost millions of dollars was the subject of a Free Press report in April.

More on the politicking of NY pension changes
http://www.syracuse.com/news/index.s...s_still_t.html

Quote:
E. J. McMahon says these changes are not nearly enough. He’s the director of the Empire Center for New York State Policy, part of the fiscally conservative Manhattan Institute.

McMahon said the governor gave away far too much by making sure to get the political approval of unions, especially in his concessions to the teachers retirement fund.

And, he said, at the first sign of good economic times, unions will push the governor and legislators to roll back the reforms made in Tier 5 until all the gains are gone.

McMahon said the state needs to dramatically reduce its financial risk by switching from a pension system to a deferred compensation system, like a 401K. In a system like that, the employees would carry the risk, not the state. Right now, the state is on the hook to give retirees a set amount of money, regardless of how the pension fund does.

“It exposes the taxpayers to enormous, open-ended risk,” McMahon said. “Pensions go to a lot of important people who we value and we like, but the question is can we support it and sustain it.”
NJ and putting off pension contributions
http://www.nj.com/hudson/index.ssf/2...r_pension.html

Quote:
The Assembly Appropriations Committee is scheduled to consider a bill tomorrow sponsored by Assemblywoman Joan Quigley, D-Jersey City, that would for the second year in a row, allow municipalities to defer up to half of its state pension contributions.

Quigley and state Sen. Sandra B. Cunningham, D-Jersey City -- who is sponsoring companion legislation in the Senate -- have both said they initiated the bills at the request of Jersey City Mayor Jerramiah T. Healy.

Last fiscal year, the pension deferral bill spared Jersey City a $14.8 million bill and the city is staring at a $40 million hole in the current fiscal year budget. But this deferral does not eliminate the obligation. The city would still have to pay the money back over 15 years with interest, which could be in the neighborhood of 8 percent.

Cunningham has said the legislation is necessary to prevent hefty tax hikes in Jersey City. City taxes have increased 11.25 percent since July 1.

Healy regards the legislation as an "interim measure" to offset a deficit.
Politics of public pensions in RI
http://www.projo.com/news/content/Po...5.3b3dcf1.html

Quote:
R.I. House leaders have limits when it comes to pension change
House Speaker William Murphy, right, won’t say when he will step down in favor of House Majority Leader Gordon D. Fox, left.
The Providence Journal / John Freidah

House Speaker William J. Murphy and House Majority Leader Gordon D. Fox say they will be working on many fronts to try to close the state budget deficit and restore the state’s ailing economy during the 2010 legislative session, which opens Tuesday.

But Murphy draws a line when it comes to pensions.

When asked during a recent interview whether reforms to the state pension system should take place in the context of what is happening in the private sector, where fixed-benefit plans have become a thing of the past and most workers are hoping against hope that their 401(k)s will recover, Murphy said no.

“We’re talking about state government,” he said. “State government is different.”
You betcha.

Redding, California... just one of many Calpers stories repeated over and over
http://www.redding.com/news/2010/jan...nue-to-upward/

Quote:
Redding's pension rates will climb rather steeply over the next few years as the city copes with a curtailed budget.

The higher rates reflect California Public Employees' Retirement System (CalPERS) efforts to meet pension obligations after suffering unprecedented market losses in the financial meltdown of late 2008 and early 2009.

CalPERS investments pay most of the annual costs for funding the pensions promised employees under labor contracts. Taxpayers, who cover the rest of those obligations, pay a larger share when the CalPERS portfolio takes a hit.

Taxpayers will be asked to make up some of the historic 2008-2009 loss under what is essentially a three-year rate surcharge, since the higher costs will be tacked on to rate increases that would have occurred anyway.
....
Pension rates for many agencies went from zero in the late 1990s and early 2000s during the Internet boom to historic highs by 2005, when CalPERS began passing on the dot-com bust to local governments. Rates lag market performance by three years, since CalPERS actuaries must evaluate work force demographics, contracts and asset growth for 2,400 member agencies, spokesman Brad Pacheco said.

Under the new policy, CalPERS spreads year-to-year investment gains and losses over 15 years when setting rates, and pays for those losses and gains over 30 years.
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  #956  
Old 01-05-2010, 08:16 AM
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Financial Times overview
http://www.ft.com/cms/s/0/13053120-f...nclick_check=1

Quote:
The US public pension system faces a higher-than-expected shortfall of more than $2,000bn that will increase pressure on many states' strained finances and crimp economic growth, according to the chairman of New Jersey's pension fund.

The estimate by Orin Kramer, chairman of New Jersey's investment council, will fuel investors' concerns over the deteriorating financial health of US states following the credit crisis and the recession.

"State and local governments are correctly perceived to be in serious difficulty," Mr Kramer told the Financial Times. "If you factor in the reality of these unfunded promises, their deficits will rise exponentially."

Estimates of the aggregate funding requirement of the US pension system have ranged between $400bn and $500bn, but Mr Kramer's analysis concluded that public funds would need to find more than $2,000bn.

A shortfall of that size would force state governments to take politically unpalatable decisions such as pouring more public money into their funds or reducing pension benefits.
Gee, ya think? Who could've seen such a thing coming?

John Bury on the new NJ gov and the Quigley bill I mentioned yesterday
http://blog.nj.com/njv_johnbury/2010...ure_issue.html

Quote:
The Appropriations Committee is now considering a bill sponsored by Assemblywoman Joan Quigley, D-Jersey City, that would for the second year in a row allow municipalities to defer up to half of their pension contributions. It passed last year. It will pass this year. The question is what will Governor Christie do when it hits his desk in March.

A) Sign It: Game over. It will mean he buckled to pressure from below and he will govern as Corzine-Lite.

B) Veto It: A good step unless it's accompanied by a sense of accomplishment.
....
C) Make an Issue of It: Nobody with even the slightest knowledge of pension funding will defend the funded status of the New Jersey plan. It is going bankrupt and piling up IOUs from future generations of taxpayers will guarantee, not forestall, disaster. Have a real debate and get the legislature to admit to their actions. They bankrupted trust funds for unemployment insurance and transportation projects and have no compunction about raiding a pension trust. To them the word 'trust' is like blood to a shark as it connotes spoils for their rapacious appetites.

Which path Governor Christie chooses here will tell us a lot about where we can expect to be in four years.
Totally agree.

San Francisco
http://www.sfexaminer.com/local/Pens...-80562122.html

Quote:
As service cuts and layoffs are being utilized to slash the budget deficit San Francisco is facing, the hidden expense of health benefits and pensions for workers is skyrocketing, putting a strain on city coffers.

Ten years ago, about 23 percent of city workers’ salaries were benefit costs. By fiscal year 2013-14, that percentage could grow to about 52 percent, according to a report from the Department of Human Resources. The City is looking at a cost of $3 billion during the next 30 years for retiree health.

Health benefits for active workers, retiree health benefits and pension costs are also substantially outpacing the revenue growth of The City.

Ten years ago, San Francisco spent $383.7 million on health insurance for active and retired workers, retirement contributions and Social Security. In the current fiscal year, that bill has risen to $890 million, a 132 percent increase. Three years from now that bill could skyrocket to $1.4 billion.
Philly op-ed
http://www.philly.com/inquirer/opinion/80562927.html

Quote:
Change Pa. pension system or prepare for catastrophe
By Thomas J. Gentzel

Dec. 11 began what could be a catastrophic era for Pennsylvania taxpayers. The Board of Trustees of the Pennsylvania School Employees Retirement System (PSERS) voted to increase the employer contribution rate to 8.22 percent of payroll for 2010-11, a 72 percent increase from this year's rate.

Those percentages will continue to climb, reaching a projected rate of near 30 percent of payroll by 2012-13 and are estimated to remain above 20 percent for nearly two decades. How much will school property tax bills increase to fund this unsustainable expense? How could it harm our children's education, their school environment and other community programs?

....
PSBA recommends the development of a hybrid plan that would balance interests, respect school employees, continue public education as an attractive occupation, and make PSERS a more affordable and fair system.

The proposal can be found at psba.org, but here are the highlights:

Establish a two-tier retirement system, one for current employees and another for those hired after a specified date (preferably as soon as possible).

Cap the school district portion of the employer contribution rate for both pension plans at the Act 1 index; the commonwealth would fund any remaining employer obligation.

Oppose enactment of any new benefit enhancements for either plan.

Assign to PSERS responsibility to administer the benefits for both plans and to manage their assets.

This plan would create a new retirement plan for future employees, but would have to be accompanied by other actions to alleviate the impending dramatic increases in taxpayer-funded support for PSERS. What must not be allowed to happen is stretching out the existing debt to lower annual costs. That would only defer the problem. A new, more affordable retirement plan for school employees needs to be created. PSBA's proposal fits that bill.

If we maintain the status quo, beginning in 2012-13, school boards will be faced with a decade-long string of employer contribution rates averaging between 29 to 33 percent a year (compared to 4.78 percent for this year). Imagine the things we won't be able to accomplish with that money.
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  #957  
Old 01-05-2010, 09:56 AM
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  #958  
Old 01-05-2010, 02:11 PM
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It isn't this simple. Actuaries don't REALLY have the knowledge - they just like saying that they do. They touted themselves as "The Architects of Financial Security" but when they are called out about their assumptions, their go-to is that they are just following orders.

My experience with pension actuaries is that many of them would use higher discount rates and rates of return if they weren't regulated.

edit to add a long overdue WWS rant: I haven't been around the pension space for a while (4 years or so) but as far as I could ever tell, there was never the slightest semblance of risk management. Reporting is several months late and only performed once per year (AT THE MOST!) - and gives management zero ability to make decisions off of. No economic capital, no reserve adequacy, no ruin analysis, no stress testing, no nothing - there are no risk metrics in the space at all. The most a plan will do is get a worthless BS asset-liability study that would fail any risk-management assessment in a real financial services organization. The question that actuaries need to ask themselves is that if they are the stewards of this risk and there is ZERO risk management being performed in the space, then what are they really doing there? What is the true benefit of an actuary other than just turning a crank and spitting out a number? Call me an idealist, but I was led to believe that an actuary was meant to add a lot more value than this - this explains why I left the field of pensions and stopped calling myself an actuary all-together. I still think that actuaries can add tremendous value to the space, but they don't have the balls to challenge their clients - they are like neutered dogs. The worst part is that nobody can add value to the space as long as actuaries insist on being limp-dcked yes-men because it is their opinion, no matter how ill-informed and uneducated, that gives their clients comfort that they are doing the right thing. This is why they need to be called-out for the damage that they really have done and are still doing to this industry. Of course this does not apply to every single actuary, but as I've said many times - it only takes a small critical mass to poison the well. There is currently no incentive for a 'good' actuary to take the risk with his client because there are 100 others in his same building who are more than willing to piss in the clients ear.

Happy Holidays and Merry New Year!
Wow, I couldn't've said it better myself. Bravo to you!

I have to believe the root cause is that regulators know that any increase in mandated risk analysis and disclosures will lead to an increase in DB-shedding by publicly-held firms. Opinions? Do regulators want to encourage or discourage DB plans?
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  #959  
Old 01-05-2010, 04:09 PM
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Wow, I couldn't've said it better myself. Bravo to you!

I have to believe the root cause is that regulators know that any increase in mandated risk analysis and disclosures will lead to an increase in DB-shedding by publicly-held firms. Opinions? Do regulators want to encourage or discourage DB plans?
Regulators shouldn't be taking that into consideration. They should be doing whatever it takes to make sure the pension plan will be able to fulfill its promises without shafting taxpayers.
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Old 01-05-2010, 04:29 PM
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Wow, I couldn't've said it better myself. Bravo to you!

I have to believe the root cause is that regulators know that any increase in mandated risk analysis and disclosures will lead to an increase in DB-shedding by publicly-held firms. Opinions? Do regulators want to encourage or discourage DB plans?
My only data point is a series of meetings I attended at the DoL and PBGC back in 2005 - without breaching any confidentiality, I will say that we were advising the PBGC on PPA approaches. There is no documentation of this so you'll have to take my word for it (along with my hazy memory). The underlying theme then was that they were willing to weed out weaker plans to strengthen the system. Both organizations expressed that they wanted a policy that will promote the existence of plans that will be healthy and were willing to bail out the weaker plans at that time. They did not want to create a snowball effect where the legislation would lead to eventual systemic credit downgrading spirals, but they were OK with eating a few plans in really bad shape in order to shore up the rest and give the appearance that they were tightening the screws.
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We, the actuarial profession, did several things badly.

1. Pandering - we marketed ourselves as finding clever ways to give the public pension sponsors something for nothing
2. Ignored consequences - we found clever ways to allow politicians to ignore the true costs of benefit increases, like negative amortization of losses
3. Low standards of measurement - GASB had the most simple-minded of standards, and is now only going half-way to raise the standard.
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