Top administrators shamelessly try to cook the pension books

So when top government administrators, who are supposed to be the neutral brokers, start advocating for cooking the books for political and budgetary reasons, we should be concerned.

That's what happened last week as the California Public Employees' Retirement System took a small step toward realistically forecasting future investment returns.

Peter Ng, employee benefits director for Santa Clara County, supported by his boss, County Administrator Jeff Smith, pleaded with CalPERS board members to override their actuary's advice because it would lead to increased short-term pension costs.

While the investment forecast rate seems arcane, it has profound financial implications for state government and local public agencies that depend on CalPERS to administer employee pensions.

The trade-off is simple: The less money the pension board expects from future investment returns, the more government agencies must contribute now -- hence, the less they have available for other employee wages and benefits.

But if the pension board sets the rate too high and fails to make the target, the system is left with debt that must be paid off, driving up future rates.

In other words, pay now or, as Ng and Smith advocated, force future generations to pay more later.

Periodically, pension system boards re-evaluate their investment projections. Although they should rely on the best professional estimates, the process is laden with politics.

When CalPERS Chief Actuary Alan Milligan last year recommended lowering the projection from 7.75 percent annually to 7.5 percent, his labor-dominated board balked.

This year, Milligan recommended 7.25 percent. On Wednesday, the board, which runs the nation's largest public pension system, approved 7.5 percent.

Even many labor leaders recognized that some rate reduction was inevitable. They tried, successfully, to minimize it by supporting a 7.5 percent rate.

The very sobering aspect to this piece is that what we are reading here is endemic to the public employees systems everywhere.

Florida just started making teachers contribute a piddly amount yearly for the first time. My BIL’s commie wife is howling like a stuck pig. I say nothing. She is mathematically ignorant while she knows everything. Her sense of entitlement to the public breast knows no bounds. She told my wife she should complain to her employer for not getting 6 weeks paid vacation each year.

This is all going to come crashing down.

The Wisconsin strike exposed the drain on the system created through public employee pensions, particularly the teachers’ union. The battle was centered on the WEA (Wisconsin Education Assoc) Insurance program, a self-funded system, that was being abused by the unions for profits which were being collected and fed back to the Democrat politicians.

The teachers’ union in WA State was pushing for a WEA insurance program of their own, but instead the state is working on taking over the teacher insurance, themselves, a kind of single payer system for school districts, where the teachers would pay a 25% premium. I think that it’s a step toward a state Obamneycare system.

When will the teachers learn that they are on the wrong side of the Obama redistribution plan?

The very sobering aspect to this piece is that what we are reading here is endemic to the public employees systems everywhere.

I maintain that the whole system is an utter shell game. Audit the Fed? Too scary -- we'd see bad things. State pensions? HA! Goldman Sachs? Recent NYT editorial reveals that they are scam artists. JP Morgan? Just the same. Sending hundreds of billions of dollars to Greece? Why? They aren't going to fix their situation -- the money just goes into someone's pocket.

I say all debts -- everywhere -- should be cancelled. Full Jubilee. Then start over with laws against fiat currency. And truly limited government. When Big Government has Big Money, it attracts nothing but looters. If government were truly starved for cash, the looters wouldn't find it nearly so attractive.

The real problem is not the expected earnings rate adjustment.

The real problem is the type of pensions in the Calpers supported pension plans, which are predominately defined benefit plans (employer “guarnatees” a formula driven defined annual/monthly benefit, “guaranteed” to be paid no matter what, no matter how the invested funds actually perform, no matter what happens in the economy, no matter what happens in the investment markets) - and the levels of those defined benefits are depending on that “expected” rate of return the administrators are hoping the funds will earn.

That differs from a defined contribution plan, where the employer guarantees to make a specific level of contribution monthly/annually, no matter what. A pension is then dereived at retitement from actuarial calculations that determine how much of a monthly/annual benefit can be funded from the balance in the employee’s pension account.

There are no jiggling of funds and scrapping up of “additional” funds for defined contribution pensions. They also do not promise what the economic times cannot reasonably deliver. They cannot be rigged by last minute overtime in the final years to get more out of some formula - defined benefit - based on final years’ earnings. The balance in the account is the balance in the account, period and the insurance company type actuarial formula for the alternative defined contribution plan operates the same regardless of the balance in the account.

Unions hate the defined contribution plans; they have no room for all sorts of special rules in a formula; rules they can fight for in negotiation with the employer. The only employer obligation under negotiation is the amount of contribution per employee that the employee will pay into each employee’s pension account. There is no future promised benefit to discuss. The performance of the funds and simple actuarial calculations will determine that at the time of retirement.

Instead of that, we get this spectacle with government pension plans every year; the taxpayers’ hired hands must either raise their taxes now, or raise their taxes later, to pay for the promises the hired hands made to the taxpayers’ employees.

Let’s see.. Billions of unpaid debt from cities and counties who can hardly keep up with current payments, a projected revenue return which is less than justified in the current economic climate, and a guaranteed makeup by cities and counties to fulfill any shortfall..

Yeah, this is just a recipe for financial disaster. And I still consider it to be gross embezzlement, as all these gold plated compensation plans were granted by fellow employees, not the people who are on the hook to pay.

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