Tag: unfunded liability

New analysis shows San Diego’s pension system compares favorably to systems across state, nation

Mary Pat Campbell

Link: https://www.sandiegouniontribune.com/news/politics/story/2022-01-16/new-analysis-shows-san-diegos-pension-system-compares-favorably-to-systems-across-state-nation

Graphic:

Excerpt:

A new analysis shows the city of San Diego’s pension system is in strong financial shape compared to similar systems across the state and the nation.

While the city’s pension debt is nearly $3 billion, most pension systems face similar gaps between their investment assets and long-term projections of what they will owe employees when those employees eventually retire.

The comparative analysis, which was presented to the city’s pension board Friday, shows that San Diego has been in the top half of the nation’s largest 175 pension systems for “funded ratio” every year since 2013.

And the city’s ratio, which just climbed from 70.2 percent to 74.3 percent thanks to the robust stock market, has been in the top quarter of those national pension systems several times in recent years.

The city’s pension system, formally known as the San Diego City Employees Retirement System, also has among the most conservative policies regarding projections of long-term investment returns.

….

San Diego’s projected rate of long-term investment growth is 6.5 percent, which is at the very low end of the group of 175 pension systems.

Author(s): David Garrick

Publication Date: 16 Jan 2022

Publication Site: San Diego Tribune

Comptroller Mendoza claims Illinois paying its bills but needs more federal bailout to avoid a big one – Wirepoints Quickpoint

Mary Pat Campbell

Link: https://wirepoints.org/comptroller-mendoza-claims-illinois-paying-its-bills-but-needs-more-federal-bailout-to-avoid-a-big-one-wirepoints-quickpoint/

Excerpt:

As for Mendoza’s claim that Illinois is paying its bill, that’s simply not true. The state entirely ignored the hole in its unemployment fund in its current budget and future budget forecasts. In reality, the state will not just have to repay the loan but must also restore the fund to a sound balance, which will probably take another $1.5 billion at least, which was the balance before the pandemic. Nor does Illinois pay its full bill for the 800-pound gorilla, pensions. Year after year it contributes far less to its pension funds than actuaries say is required to prevent unfunded liabilities from growing.

Mendoza supported her claim that Illinois is paying its bills by saying, as she frequently does, that Illinois shrunk its bill backlog by about 80% since its historic high of $16.7 billion during the 2015-2017 budget impasse.

Author(s): Mark Glennon

Publication Date: 3 Jan 2022

Publication Site: Wirepoints

Illinois reaches funding milestone with its second-largest pension fund

Mary Pat Campbell

Link:https://capitolfax.com/2022/01/13/illinois-reaches-funding-milestone-with-its-second-largest-pension-fund/

Graphic:

Excerpt:

* The State Actuary issued a report on December 22nd entitled “Actuarial Assumptions and Valuations of the State-Funded Retirement Systems.” Yeah, I didn’t read it, either.

But one of my very smart readers did go through it and reached out to me yesterday…

Hi Rich,

Long time follower, first time writer. In full disclosure, I recently retired from the [redacted] after more than [redacted] years. I just read the COGFA article today and was encouraged about the State’s finances yet again.

Another report that came out in late December that received no coverage was the State Actuary Report (see link below). The unheralded news in this report was that there were several State pension systems that passed the “Tread Water” point in FY21; meaning we are now paying in more than we owe and reducing the liability for those systems.

Author(s): Rich Miller

Publication Date: 13 Jan 2022

Publication Site: Capitol Fax

City of Newport Beach Urges Greater Sustainability in State Pension Fund, Aims to Pay CalPERS Debt by 2030

Mary Pat Campbell

Link:https://www.newportbeachindy.com/city-of-newport-beach-urges-greater-sustainability-in-state-pension-fund-aims-to-pay-calpers-debt-by-2030/

Excerpt:

Newport Beach City officials are advocating for policies aimed at increasing long-term sustainability in the state public employee pension fund, CalPERS, as Newport Beach continues to make significant progress in paying down its debt obligations to the system.

On November 16, the CalPERS Board of Administration decided to maintain the fund’s discount rate, or the expected rate of return of the pension fund investments, at the current 6.8 percent. The discount rate had been lowered from 7.0 percent to 6.8 percent in July through CalPERS’ Funding Risk Mitigation Policy, which automatically lowers the discount rate in years when investment returns are above the assumed rate of return. Prior to the recent discount rate change, Newport Beach had asked CalPERS to lower its discount rate to 6.5 percent or below, a more conservative number that could help further reduce future risk.

….

Newport Beach expects to eliminate its unfunded liability by 2030, thanks to an aggressive payment schedule. Beginning in 2018, the City Council decided to increase annual payments to $35 million a year, $9 million more than required. This fiscal year, for the second year in a row, the City will contribute $5 million more as an additional, discretionary payment, bringing the total contribution to $40 million.

Publication Date: 29 Nov 2021

Publication Site: Newport Beach Independent

Illinois pension shortfall surpasses $500 billion, average debt burden now $110,000 per household – Wirepoints Special Report

Mary Pat Campbell

Link:https://wirepoints.org/illinois-pension-shortfall-surpasses-500-billion-average-debt-burden-now-110000-per-household-wirepoints-special-report/

Graphic:

Excerpt:

The $110,000 per household is an average across the entire state, but the precise burden for Illinoisans differs depending on where they live. The debt burden on Chicago’s one million households is larger because of the city’s deeper debt crisis. There, each household is on the hook for $180,000 for their share of state and local retirement debts.

Illinoisans living outside of Chicago, meanwhile, face an overall average burden of $90,000 per household. For comparison purposes, the burdens for Chicago and non-Chicago households, based on official state and local retirement debts, are $95,000 and $53,000, respectively.

Author(s): Ted Dabrowski and John Klingner

Publication Date: 17 Nov 2021

Publication Site: Wirepoints

Stock Market Helps State Pension Debt Hit 10-Year Low, But Crisis Still Looms Large

Mary Pat Campbell

Link: https://www.forbes.com/sites/lizfarmer/2021/09/23/stock-market-helps-state-pension-debt-hit-10-year-low-but-crisis-still-looms-large/

Graphic:

Excerpt:

After state pension debt grew to more than $1.4 trillion last year, two new reports estimate that gap between the total amount states have promised to retirees and what they’ve actually set aside in their pension investment funds will shrink dramatically. A recent analysis by the Pew Charitable Trusts says the gap could dip below $1 trillion this year. And a report released today by the Equable Institute estimates that 2021 returns will shrink state pension debt to $1.08 trillion.

The gains in the stock market played a big role. Equable’s report calculates that preliminary 2021 investment returns averaged an astounding 20.7% return. That’s nearly triple the average assumed rate of return in any given year. Those gains will boost the average pension plan to about 80% funded, the highest funding ratio since 2008.

Author(s): Liz Farmer

Publication Date: 23 Sept 2021

Publication Site: Forbes

Elorza’s pension proposal relies on a risky approach and an adviser linked with 38 Studios

Mary Pat Campbell

Link: https://thepublicsradio.org/article/why-elorzas-latest-proposed-pension-fix-faces-a-lot-of-questions-

Excerpt:

Providence’s pension crisis has its roots in the late 1980s. That’s when the city’s Retirement Board approved unusually generous compounded cost of living adjustments for more than 2,500 city workers and retirees. Decades later, that move helps explain why there’s a $1.2 billion gap between the pension balance and the amount owed to current and future retirees.

The pension crisis has defied attempted solutions for years. Providence officials say the city has just 22% of the money needed to meet its long-term pension obligations. And the amount of the city budget consumed by the pension is growing 5 percent a year, to about $93 million currently. Without a change, that annual payment will rise to $227 million by 2040.

Mayor Jorge Elorza said these pension costs are unsustainable.

“It’s only a matter of time before they continue to squeeze everything else out of our budget, so that we’re cutting deeper and deeper into the bone,” he said during a recent news conference.

Elorza’s plan involves selling $704 million in pension obligation bonds. The idea is that these bonds could generate enough of a return to boost the pension system’s funding to more than 60 percent.

Author(s): Ian Donnis

Publication Date: 1 June 2021

Publication Site: The Public’s Radio

National Public Pension Coalition vs. Truth in Accounting: Who is Accurate With Public Pension Unfunded Debt?

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/national-public-pension-coalition

Graphic:

Excerpt:

NPPC, I recommend you think through what will actually inform and protect your members. The TIA folks are not distorting the message, except to the extent that state and local governments are undervaluing their pension and OPEB promises.

Complaining about TIA will not make the pensions better-funded. Complaining about TIA will not prevent the worst-funded pensions from running out of assets, which will not be supportable as pay-as-you-go, as the asset death spiral before that will show that the cash flows were unaffordable for the local tax base.

And don’t look to the federal government to save your hash. So far bailout amounts have been puny compared to the size of the promises.

Author(s): Mary Pat Campbell

Publication Date: 9 June 2021

Publication Site: STUMP at substack

Chicago Park District pension revamp takes fund off road to insolvency

Mary Pat Campbell

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106081343SM______BNDBUYER_00000179-ec17-d1ac-a5fb-ef37eda90001_110.1

Excerpt:

The Chicago Park District pension funding overhaul approved by lawmakers moves the fund off a path to insolvency to a full funding target in 35 years, with bonding authority.

State lawmakers approved the statutory changes laid out in House Bill 0417 on Memorial Day before adjourning their spring session and Gov. J.B. Pritzker is expected to sign it. It puts the district?s contributions on a ramp to an actuarially based payment, shifting from a formula based on a multiplier of employee contributions. The statutory multiplier formula is blamed for the city and state?s underfunded pension quagmires.

“There are number of things here that are really, really good,? Sen. Robert Martwick, D-Chicago, told fellow lawmakers during a recent Senate Pension Committee hearing. Martwick is a co-sponsor of the legislation and also heads the committee.

?This is a measure that puts the district on to a path to full funding over the course of 35 years,” he said. “It is responsible. There is no opposition to it. This is exactly more of what we should be doing.”

The district will ramp up to an actuarially based contribution beginning this year when 25% of the actuarially determined contribution is owed, then half in 2022, and three-quarters in 2023 before full funding is required in 2024. To help keep the fund from sliding backwards during the ramp period the district will deposit an upfront $40 million supplemental contribution.

The 35-year clock will start last December 31 to reach the 100% funded target by 2055.

Author(s): Yvette Shields

Publication Date: 8 June 2021

Publication Site: Fidelity Fixed Income

‘Full funding’ for pensions – two ways to skin a cat

Mary Pat Campbell

Link: https://www.truthinaccounting.org/news/detail/full-funding-for-pensions-two-ways-to-skin-a-cat#new_tab

Excerpt:

Spending plans that “fully fund” pension obligations by making statutorily required contributions — amounts required by legislators, by law — do not necessarily fully fund pensions. In fact, Illinois has a sad history of passing laws with funding that falls far short of actuarial requirements — the amounts necessary to keep pension (and related retirement health care) debt from rising over time.

For an example, take a peek at the Illinois Teachers’ Retirement System (TRS). Their annual report for 2020 is available here. The table on pdf page 2 shows that the system has accumulated more than $50 billion in invested assets, but this massive amount actually falls far short of the nearly $140 billion in present value obligation for future pension payments, leading to a nearly $90 billion unfunded liability.

…..

The practice of distributing unfunded promises to pay money in the future has been a key of the tool chest that politicians have employed in misleading the citizenry that Illinois has lived up to constitutional balanced budget requirements, when in truth it has done anything but.

Author(s): Bill Bergman

Publication Date: 8 June 2021

Publication Site: Truth in Accounting

The Chicago Park District’s 30% Funded Pension Plan – And More Tales Of Illinois’ Failed Governance

Mary Pat Campbell

Link: https://www.forbes.com/sites/ebauer/2021/06/07/the-chicago-park-districts-30-funded-pension-planand-more-tales-of-illinois-failed-governance/?sh=7ce1216054fa

Graphic:

Excerpt:

The Illinois legislature ended its regular legislative session on May 31, in a flurry of legislation passed late into the night. One of those bills was a set of changes to the 30% funded pension plan of the Chicago Park District. Were these changes long-over due reforms, or just another in the long line of legislative failures? It’s time for another edition of “more that you ever wanted to know about an underfunded public pension plan,” because this plan illustrates a number of actuarial lessons.

80% is not OK. Governance – who gets to set the contributions? Funded status can collapse very quickly and be very difficult to rebuild. Need to use actuarial analysis not just legislator’s brainstorms

Author(s): Elizabeth Bauer

Publication Date: 7 June 2021

Publication Site: Forbes

Discussion of “The Sustainability of State and Local Government Pensions: A Public Finance Approach” by Lenney, Lutz, Scheule, and Sheiner (LLSS)

Mary Pat Campbell

Link: https://www.brookings.edu/wp-content/uploads/2021/03/1c_Rauh.pdf

Graphic:

Excerpt:

Main Comments
• Stabilization goal is reasonable to consider
• However, public sector’s approach to funding with risk assets creates
additional issues for this type of debt (unfunded pension liabilities)
relative to government bonds
• Instability due to market risk isn’t in the model, because the model is
deterministic: no distribution of possible outcomes
➢ Higher expected return you target, the greater the distribution of outcomes
• Only meaningful scenario is r=d=0% → fiscal adjustment is 14.9% of
payroll vs. current 29%. So a 51% increase.
➢ I will provide some reasons I think this might still be too low

Author(s): Joshua Rauh

Publication Date: 25 March 2021

Publication Site: Brookings