New York's see-no-evil pension guardian
By
E.J.
McMahon on December 13, 2011 8:23 AM |
No elected official in the country has more
oversight over more public pension dollars than Comptroller Thomas DiNapoli, the sole trustee of New
York State's $150
billion Common Retirement Fund, which feeds the 638,000-member New York State and Local Retirement System
(NYSLRS).
And no official has done more to relentlessly defend and promote the public
pension status quo.
Last night, DiNapoli
appeared at the New School in Manhattan to
deliver what his office billed as a "A Vision for
the Future of Retirement Security in New
York." Unfortunately, the comptroller's vision
of the future looks an awful lot like the past. He sounded many familiar talking points -- for example,
misleadingly citing the low figures for average pension payments to all
former public employees, including those retired for many years or barely
vested in the first place, rather than the much higher totals for benefits
collected by employees who recently retired (often in their 50s) after full
careers on the public payroll.
As DiNapoli noted, the private-sector has turned
increasingly to the defined-contribution model, principally the 401(k) -- and
the average 401(k) accumulation is pitifully small, and many funds also charge
high management fees while delivery low returns. This is something of a straw
man: no one proposing a DC approach in the public-sector would hold out the
average small business 401(k) as an ideal alternative. And while DiNapoli cited an estimate that 401(k) plans collectively
lost $1 trillion during the recession, he didn't mention that his own fund lost
$40 billion in fiscal 2007-08 alone. Nor did he acknowledge that during the
four years since he became comptroller, a period in which NYSLRS counted on
earning 7.5 to 8 percent, its returns have averaged 2.2 percent -- which is why
the taxpayers are being forced to kick in much more.
Although the comptroller is above all a financial officer, with direct
oversight of the nation's third largest public pension fund, he ignored the
principal criticism of public pension systems from a financial perspective.
Consider the issue of the discount rate used to estimate future pension
liabilities, which has been discussed extensively on this site and in many other public and online
forums across the country. Private and public sector pension plans both invest
heavily in equities in hopes of realizing high long-term returns, typically 7.5
to 8 percent. Private plans, however, discount their liabilities using the interest
rate on low-risk investments, such as AAA-rated corporate bonds, which means
they must put more money aside to fully fund their future obligations. Public
plans discount their liabilities based on what they hope their assets will
earn, reducing the amount taxpayers must pay into the funds. When asset returns
are lousy -- as they have been for the past decade -- taxpayers must pick up
the slack with much higher contributions.
A growing number of independent academics, actuaries, economists and other
analysts who have studied this issue (including the Congressional Budget Office) have concluded that
public funds are doing it the wrong way. This means DiNapoli
and other trustees are systematically undervaluing their liabilities -- which,
in turn, undermines the comptroller's contention that public pensions are
inexpensive for employers. The Government Accounting Standards Board (GASB)
recently issued new proposed rules to address some of the criticisms of the
current approach, but GASB's approach in turn has
been criticized by both sides in the debate.
So, what did the comptroller have to say about this raging controversy?
Nothing.
In DiNapoli's 10 pages of prepared remarks (not
posted online by his office), the word "liability" appeared only once
twice, in this sentence: "We must change the perception of pensions
being viewed primarily as a liability and a cost to taxpayers to what they
really are: a pre-funding of a legitimate, looming government liability and
societal obligation."
But of all senior state officials, the comptroller should care least
about "perception." His duty is to confront and manage the financial
realities that everyone else in Albany
would prefer to ignore. If New
York's CFO and sole pension fund trustee prefers not
to think of pensions mainly as a "liability," then who in the world
will?
DiNapoli also remains oblivious to the implications
of his own policies. At the New School, he boasted, not for the
first time, that "unlike some states that have skipped their
annual payments --- sometimes for years -- New York State
has never missed a payment."
In fact, while New York (unlike, say, New Jersey) has not
skipped pension contributions, it has deliberately underpaid -- with the
active connivance of the comptroller himself, as explained here and here. Over the last two years, the state has
"amortized" (i.e., stretched out, over 10 years) $824 million in
pension contributions, and the Cuomo administration plans to defer $2.7 billion
more in similar fashion over next three years..
DiNapoli's continuing refusal to engage in discussion
of key concerns about public pension funding stands in contrast to the
clear-eyed approach of his fellow Democrat, Rhode Island General Treasurer Gina
Raimondo, who issued this "Truth in Numbers" report as the
analytical foundation for a set of recently enacted pension reforms in her
state.
To be sure, Rhode Island's pension funds are
in much, much worse shape than New
York's. But if Rhode
Island had elected a treasurer with DiNapoli's approach, it would now be on the road to
bankruptcy instead of reform.
http://www.publicsectorinc.com/forum/2011/12/new-yorks-see-no-evil-pension-guardian.html
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Stanford
researchers find that pension funds for California
state workers are still in peril - action needed now
BY DAN
STOBER
Almost two
years ago, a Stanford study stirred up discussion statewide with the prediction
that the pension funds of California's
state workers were headed for a train wreck. The retirement system would
eventually not have enough money to pay all that it owes to its retirees.
Since then,
the picture has not improved, Joe Nation, a public policy expert at the
Stanford Institute for Economic Policy Research, said Tuesday as he released a
report on his latest
research. "Perhaps surprisingly, the situation is even
worse." The unfunded liabilities of the pension funds have increased by 15
to 20 percent.
All this
could have a direct effect on state services as money is diverted to pay the
pensioners. "That increased spending on pensions is virtually certain to
continue to crowd out non-pension spending, including education and social
services," the report warned.
The big
state pension funds at the center of the huge financial problem are the California Public Employees' Retirement System (CalPERS), the California
State Teachers' Retirement System (CalSTRS), and the University of California
Retirement Plan (UCRP).
The
combined unfunded liability for the three funds is $290.6
billion, presuming that the funds earn a 6.2 percent return from investments.
That figure represents an unfunded amount per California household of nearly $24,000,
Nation said.
Even
if the retirement funds yield 7.75 percent, the situation would remain
dangerous, he said.
The crisis
was driven by pension funds that understated the costs of pension payouts and
over-estimated the amount of money the funds would have in future years, Nation
said. The strategy was, "If you can push costs off to the future, do
it."
Board
members of pension funds were typically not required to have any technical
expertise. Contribution rates for employees were set too low – zero for some.
Any
solution, Nation said, will have to involve current state workers:
"There's just no way to solve this problem if that's not there." The cost
to delay a solution for another year is $1.247 billion,
or $3.4 million each day. The hope, he said, is that policymakers will step up
and actually address the problem.
More
information on the pension crisis will be released this week on the SIEPR website.
California
Common Sense has posted a suite of interactive data visualizations that illustrate the findings of the report and in particular
the funding status of pension systems throughout California, under a range of
assumptions.
Media Contact
Joe Nation,
Ph.D., Stanford Institute for Economic Policy Research (SIEPER), jnation@stanford.edu
Michelle Mosman, SIEPER public affairs, mmosman@stanford.edu,
(650) 725-1872
http://news.stanford.edu/news/2011/december/california-pension-debt-121411.html