STUMP » Articles » On Public Pension Transparency » 17 November 2014, 06:52

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On Public Pension Transparency  


17 November 2014, 06:52

Now that elections are over, a variety of info, political-wise, has been exposed, and advice galore is dispensed.

As an example, a call for pension transparency in Illinois:

Public pension numbers are by far the murkiest part of Illinois’ fiscal crisis, and the biggest. Pension numbers have been deliberately obfuscated for years by politicians intent on hiding problems and by many actuaries hired by those politicians who are willing to play ball. They’ve succeeded.

Reform is long overdue, and Governor-elect Rauner can do it alone after he takes office.

Readers here, and anybody who follows public pensions closely, are well aware of the gap between the numbers reported by government and the real numbers calculated using better, more realistic methods, like new ones from the Governmental Accounting Standards Board. Absurdly, Illinois now keep two sets of books – the official ones (that are widely reported), and the new ones required by the those standards (that are rarely reported).
Finally, the Illinois Department of Insurance collects extensive numbers, much of which is not online, for all 675 public pensions in Illinois. One village trustee who is particularly conscientious about the municipal pension crisis (Jim Palermo of La Grange) had to file Freedom of Information Act requests on all 675 to get the data he wanted. That’s ridiculous. The Department of Insurance had the data in electronic form and it should be online.

All these problems can be corrected by a governor who wants pension transparency, and he can do it on its own. Rauner will be appointing many new trustees to the largest pensions and a new Director of the Department of Insurance. They can be selected based on a commitment to transparency. He could probably also implement reform by executive order, or by making his expectations clear to the state actuary that annually summarizes major pensions in a report certified by the Auditor General. (The most recent such report is discussed here.) One way or another, a governor can do it if he wants.

Indeed, that doesn’t require legislative approval at all.

After all, look at what the California comptroller did:

SACRAMENTO >> With each passing year, California taxpayers are increasingly liable for billions of dollars more to cover retirement benefits for police, firefighters, teachers and other public employees, according to a massive amount of pension data recently released by the state Controller’s Office.

A decade of financial data posted by Controller John Chiang on his open-data website, , shows that the state’s 130 public pension systems are carrying $198 billion in unfunded liability in 2013, compared with $6.3 billion of unfunded liability in 2003.

The systems run by the state, cities and other government agencies range from the nation’s largest public pension system, the California Public Employees’ Retirement System (CalPERS) with $281.1 billion in assets in 2013, to the smallest, the City of Pittsburg Miscellaneous Employees’ Retirement System of 1962, with assets of less than $9,000.

“By pushing our state into the digital age of providing knowledge and information, I hope to empower greater citizen participation in how government handles a policy matter which is central to California’s long-term prosperity,” Chiang said in a statement.

Chiang, a Democrat who recently cruised to victory in the state treasurer’s race, has been using his position as the state’s chief fiscal officer to make government records transparent and accessible. In a recent audit report, he criticized CalPERS for a passive approach that he said invites abuse.

The website allows users to compare data from multiple pension systems, track trends over the past 10 fiscal years and download raw data.

That didn’t require the California legislature to do anything (thank goodness), but that the controller decided this was good to get out there.

That said, it’s a bunch of raw data that needs crunching by various people (and I won’t likely be able to get to it for a while).

Yes, they’ve got some pre-digested views related to public pensions, but these numbers are totally contextless.

I really want to be able to do the analysis I recommend in my letter to the Actuarial Standards Board:

When one sees that 80% of the ARC [actuarially required contribution] was actually contributed, one wonders how bad that ultimately is. If one sees asset losses over one year, what does it mean in the long run? One might have seen a particular average portfolio return over time, but cash flows in and out of the plan, so average returns may distort thinking about what a good assumption about rate of return would be.

The historical exhibit as above [which shows how the unfunded liability changes from year to year, by cause] helps stakeholders see how changes develop over time and where the largest problems are. This is especially the case when actuaries are trying to influence decision-makers in terms of increasing funding or changing assumptions being used. The arguments about contributions needing to be made or discount rates needing to be changed become less theoretical when one sees how these decisions have actually played out over history.

It takes a good deal of time for such deviations to reveal themselves in a consistent way, so I think that it may be useful to require a development of the unfunded liability over a long time (perhaps not proscribing the time period, but it seems to me at least a decade would be called for.) In addition, in order to understand the magnitude of the issue, such a historical development table should include balance sheet items such as the total liability amount and unfunded liability amount, so one can make percentage comparisons.

The pension tsunami has not started in any specific year, but has been a travesty spanning multiple years, and the problem has developed over time.

A first step is making the data available, but this stuff is not easy to interpret.

But it is a big step to release that data.

There have been multiple onlookers who have tried to reverse-engineer public pension valuations as certain key information is held private. If more of this data were released — and it doesn’t cost a lot in this age of cheap bandwidth and storage space — then independent researchers could do their own analysis.

But you know various parties are not interested in that.


But this would be a great move for various newly-elected politicians to do. Rather than claim to be the “most transparent [whatever] ever”, they could actually put information out there for the public. Rather than crowing about the snow job put over on the public, they could say “this is what we know, and you can look at it, too.”

It’s a fairly low-level dream, but I dream it nonetheless. It’s not particularly partisan, either.

Unless one’s party is based on lying to people.

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