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  #31  
Old 01-25-2012, 05:31 PM
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Originally Posted by Lane Meyers View Post
4.5% is more than conservative. It's nonsense.
You mean in light of the Fed announcement?

I agree.

Oh, I'm sorry. You said more than.
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  #32  
Old 01-27-2012, 06:33 PM
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New York stuff

Bloomberg on NYC pensions and budget

http://www.boston.com/news/education...ng_nyc_budget/

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New York City Mayor Michael Bloomberg said Tuesday that with an $8 billion pension bill squeezing the city's finances, state legislators should back the governor and create a new lower pension tier for future municipal and state workers.

The city's pension costs have risen 500 percent from $1.5 billion in 2002 when Bloomberg took office and now comprise 12 percent of the budget, equivalent to combined operations of the police, fire and sanitation departments, he told a joint legislative budget committee. The new pension tier would save the city $30 billion over 30 years without costing current workers anything, he said.

"It would raise the retirement age, exclude employee overtime from pension calculations, bring progressivity into employee pension contributions and institute shared risks and rewards that would reflect the fluctuations in the market," Bloomberg said. "It would also offer new employees the choice of a defined contribution option, with a flexibility and portability that many may find a better, fairer choice for them."

Unionized state workers have criticized Democratic Gov. Andrew Cuomo's pension proposal, arguing a new lower tier was enacted only two years ago, most pensions are less than $30,000 and defined benefit plans like theirs are critical to middle-class retirement security.


And we'll see what Cuomo actually can get

http://www.ny1.com/content/news_beat...can-be-created

Quote:
Efforts to establish a new, less generous pension tier failed in the state Legislature last year. This time around, Governor Andrew Cuomo has made the proposal part of his budget.

That is making some lawmakers uneasy, since the deadline to get it all done is just two months away.

"We can't do it in time for the April 1 budget deadline. So what we should do is be thoughtful in our approach. We should include as many people as possible," said Brooklyn-Staten Island Senator Diane Savino. "And we should design a system where security for our retirees is first and foremost our objective."
....
Tier VI would raise the retirement age, increase employee contributions and take out overtime in calculating the formula for determining individual payouts. It would also give workers a choice between a defined benefit plan or pension, and a defined contribution plan, which is more like a 401k.

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Old 01-31-2012, 09:24 AM
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http://www.bloomberg.com/news/2012-0...ecommends.html

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The California State Teachers’ Retirement System, the second-largest U.S. public pension, should lower its assumed annual rate of return to 7.5 percent from the current target of 7.75 percent, its actuary said.

The board of the $144.8 billion fund is scheduled to vote Feb. 2 on the recommendation, which would add $5.9 billion to its $56 billion funding shortfall, according to a report by Milliman Inc., the fund’s consulting actuary.

Calstrs posted a 2.3 percent investment gain in 2011, reducing its ability to meet long-term obligations to 856,000 members and their families. The fund had only 71 percent of the money it needs to pay benefits as of June 30, 2010, down from 78 percent a year earlier, according to a statement.

“There is a less than 50 percent probability that the current assumption” of 7.75 percent will be met “over the long term,” Milliman actuaries wrote in their report. Over 10 years, the fund gained 5.4 percent, according to a statement Jan. 24.
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Old 01-31-2012, 09:40 AM
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But there isn't a less than 50% probability of 7.5% being met in the long term?
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Old 01-31-2012, 09:49 AM
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http://www.ai-cio.com/channel/ASSET_...erfunding.html

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Strict government accounting standards and fears of a larger shortfall push underfunded public sector pension plans in the United States to take on more investment risk than their private sector peers, new research has found.

Public sector pension fund investors and their fund managers react differently to an underfunded status than their private sector peers, Nancy Mohan and Ting Zhang at the University of Drayton found in research published this week.

The pair said that during their research they had found evidence that government accounting standards ‘strongly affect risk-taking behavior’, as most pension plans used higher return assumptions to discount their pension liabilities.

The paper said: “We find that government accounting standards strongly affect public fund investment risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and beta.”

In addition, as most of these public sector plans remain open for new members whereas many private plans are now closed, state retirement systems, for example, can push liabilities further into the horizon.

The paper said: “Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis.”
http://papers.ssrn.com/sol3/papers.c...act_id=1992009
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Old 01-31-2012, 09:50 AM
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But there isn't a less than 50% probability of 7.5% being met in the long term?
baby steps

baby steps
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  #37  
Old 01-31-2012, 01:35 PM
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But there isn't a less than 50% probability of 7.5% being met in the long term?
49.99999%, so no.
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Old 01-31-2012, 02:25 PM
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But there isn't a less than 50% probability of 7.5% being met in the long term?
I don't see how you could know the unconditional probability of something like that.
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Old 01-31-2012, 03:46 PM
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The actuary uses expected returns, standard deviations and correlation matrices from the investment consultants and apply them to the asset allocation of the fund. It's not rocket science. Given those assumptions the actuary can say what the probability is that the average return over some number of years will exceed some number.

Now you all can sit there and say, "that's a lot higher than corporate plans use, so it must be too high." Or you can say, "that's a lot higher than the risk-free rate or the munincipal bond rate, so it must be too high." But you should keep in mind that they are using the long-term expected return on plan assets. If you could get your heads around that (a lot to ask apparently), then maybe you could discuss whether the rate should be 7.25, 7.50 or 7.75.
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Old 01-31-2012, 04:02 PM
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To me, the risk margin is compensation for taking on the risk that the asset value collapses, ala 2008 ... it is not something to count on. Assets should be assumed to grow at the risk free rates. Liabilities should be risk adjusted (may be positive or negative) based on the mortality outlook of the people in the pension.

Of course, that would make DB plans look too expensive (hint: they are) and they would all go away (they should), so the people who's livelihood depends on DB plans existing don't make that decision.
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