STUMP » Articles » Testing to Death: Which Public Pensions are Cash Flow Vulnerable? » 14 May 2017, 16:38

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Testing to Death: Which Public Pensions are Cash Flow Vulnerable?  


14 May 2017, 16:38

Happy Mothers Day to me — and I am going to indulge myself today. By testing pensions to death!

Thanks to Chandra Lye at Chicago City Wire for covering my Chicago MEABF projection seen here.

Thanks also to the following linkers:

Howdy to the people from the Actuarial Outpost and facebook!


So is MEABF a special case? (SPOILER: yes it is.) Are there other public pensions also in danger of running out of cash (some already have — cf Puerto Rico — but they’re not in my database.)

So I decided to try a couple different things — a description of the mechanics of the model is here, and here are the three situations I decided to try:

  • All plans with a “zero baseline” — I assume all cash flows are constant – contributions, benefits, and expenses are all held constant; there is an assumption of 0% investment returns
  • All plans matching their 10-year average experience
  • All plans matching their 5-year average experience

I started with 160 plans from the Public Plans Database, and a few were missing data to be able to get these averages. For the baseline, I had 155 plans — 40 of those 155 did not last to 2040 in this simple projection.

The updated spreadsheet with the macros (and results) can be seen here.


As there are 40 pensions in the list that don’t survive the baseline, let’s check the nine that fail by 2030:


1. Chicago Municipal Employees, 2024
2. Kentucky ERS, 2024
3. Milwaukee City ERS, 2024
4. New Jersey Teachers, 2024
5. Cincinnati Employees Retirement System, 2028
6. St. Louis School Employees, 2028
7. Detroit Police and Fire Retirement System, 2029
8. Denver Schools, 2030
9. Minneapolis ERF, 2030

Now, these aren’t necessarily realistic — this is assuming nothing changes from the 2015 result, and there’s no investment returns. If one digs into particular details, one sees some odd stuff:

Kentucky ERS baseline:

Milwaukee City ERS baseline:

New Jersey Teachers baseline:

These plans have shown substantial increases in contributions — and something with a big step up in expenses for Milwaukee, which will cause weird results when I do the matching assumptions runs.

But this is the point — there will be some very distorted results, and so one needs to look at it carefully. This is why one not only tests combinations of assumptions, one sees what it takes to have a sustainable system versus stresses.

Note that funded ratios will not tell you any of this. Also, that these are multidimensional.


So now, let’s look at the grid when I match the 5-year and 10-year experience.

Remember that the Milwaukee City ERS has a very large percentage increase in expenses, which aren’t realistic to grow at 50% per year. Those failures are exaggerated – but that’s why I have a baseline situation.

But this gives us some plans for me to investigate more closely later. We knew that Dallas Police and Fire was stressed, as we knew with respect to Chicago MEABF. But Denver schools? I will need to look at that one.

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