STUMP » Articles » Public Pension Quick Takes: A New Feature » 20 February 2015, 06:03

Where Stu & MP spout off about everything.

Public Pension Quick Takes: A New Feature  


20 February 2015, 06:03

I tend to be long-winded, but there are lots of public pension stories that go by, and why should you be let off because I have a bunch of tabs open that I never get around to?

Thus, my new feature. A bunch of public pension stories, with only short comment for me.

Let’s hit it.

Insane pension benefit design in Philly

I didn’t believe this when I first read it:

(Bloomberg) — Philadelphia has less than half the money it needs to keep its promises to retiring workers. Yet instead of socking away investment earnings, the city must spend the cash.

When the pension fund of the fifth-most-populous U.S. city performs better than its target, some retirees get a bonus — which will occur this year for the first time since 2008. As Philadelphia, like municipalities nationwide, struggles to meet mounting retirement obligations, it can’t earn its way out of the hole, underscoring the challenge of honoring politicians’ past pledges.

This will not end well.

South African teacher resignations up amid pension rumors

South Africa is having its own pension trouble:

The mass resignation of teachers continues unabated despite assurances that the proposed pensions reforms would not affect pension payouts, the Government Pensions Administration Agency said in Pretoria today.

According to the agency’s acting chief operating officer Jay Morar, the resignation trend started in May last year. He said the highest number of resignations was recorded in November with a total of 4,600 resignations.

Morar urged GEPF members to stop resigning because they were afraid that they would lose their hard-earned money, especially their lump sum benefits.

He said teachers were the most affected by the misinformation, urging them to approach the agency for clarity.

Morar said teachers who have resigned en mass due to the rumour were those on their verge of retirement, between the ages of 55 and 60.

I have seen a few of these waves in the U.S., too.

Public polling of opinion on pensions

I understand why Reason would do this….

The latest Reason-Rupe poll took these difficult questions to the American people to ask how they would make trade-offs between promises made to government workers and taxpayer bailouts of the pension programs. As one might expect, significant differences emerge between public sector workers and private sector workers.

Part of the issue is that private sectors workers think government employees’ benefits are better than those with similar jobs in the private sector by a margin of 60 to 36 percent. Moreover, private sector workers tend to hold both government officials and public employees responsible for the underfunded pension problem, while government workers primarily blame government officials. Consequently, private sector workers approve of a number of proposed reforms to control public employee pension costs that public employees predictably oppose.

Or, one could just look to self-interest in all of these.

Thing is, public opinion on this is relevant only to the point where reality intrudes. This bit was cute:

In the absence of concrete trade-offs, both government workers and private sector employees oppose raising taxes or cutting government services to fund pension benefits. Similarly, roughly 7 in 10 of both private and public workers oppose cutting benefits to already retired government employees.

However, the two groups diverge over current government employees. Government workers also oppose (68%) reducing their own future pension benefits while private sector workers marginally favor (51%).

Look, trade-offs are going to have to be made. Someone is bearing the brunt, and it’s probably going to be everybody.

But hey, here’s a little reality:

The reform that both public and private sector workers agree upon to deal with underfunded pensions is to increase government workers’ required pension contributions (65% of public employees, 88% of private employees favor).

I wasn’t expecting that.

Urban Institute Has a Toy

Build Your Own Pension!

I don’t know how good of a model it is, but I’ve forked their repo (no, that’s not innuendo) and may try my hand at adjusting it in the code itself.

Public Pensions Book Sixth Straight Years of Gains

After 6 years of a bull market, you’d hope so:

(Bloomberg) — U.S. public pensions reported median returns of 6.8 percent last year, the sixth year in a row of gains after the financial crisis, according to Wilshire Associates.

The gains, though, are less than the annual investment returns of 7.5 percent to 8 percent that many state and local governments count on to pay benefits for teachers, police and other employees. In the 10 years through Dec. 31, public pensions had a median return of 6.6 percent.

And for a longer period? 10 years is nothing in pension time.

This part is cute:

Assets of the 100 largest U.S. public pension funds rose to $3.31 trillion in the third quarter of 2014 from $3.06 trillion in the same period of 2013, according to the U.S. Census Bureau. The average funding of state and local pensions has deteriorated even though investment returns have improved, partly because of inadequate contributions by governments, according to a report last year from Moody’s Investors Service on the 25 largest public plans. Unfunded liabilities tripled to almost $2 trillion from 2004 through 2013.

Partly because? How about entirely because.

They’re not giving me much in the way of significant figures here, but let me do some math:

$3.3 trillion in assets + $2 trillion in unfunded liability = $5.3 in total liability

funded ratio = 3.3/5.3 = 60%.

(I am doing the calcs to one significant figure)

Which probably explains the next (and last) of my quick takes:

Politician Pension Guru Doesn’t Understand Pension Liability

It’s not much of a headline, but it will have to do:

HARRISBURG, Pa. (WHTM) – Many lawmakers see Pennsylvania’s financial ship as the U.S.S. Poseidon with a $50 billion dollar tidal wave bearing down.

“That means if everybody retired today, we would come up $50 billion short,” explained Representative Glen Grell (R-Cumberland), one of the House’s acknowledged pension gurus. “Now, everybody is not gonna retire today and you have to pay this over time, but still $50 billion is a really big number.”

I kind of lost it yesterday, but now that I am in a calmer frame of mind, I say:

No. That’s not what that means.


But here’s the rub: the favorite go-to lie was the 80% Funding Ratio is Okay myth, but you can’t really use that one when you’re way below 80% funding and you’ve had years of investment gains (so you can’t blame the market, either).

I expect this stupid “explanation” is going to crop up more and more.

That’s it for this week. Watch next Friday for the next quick takes.

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