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The Pension Rate-of-Return Fantasy
Wall Street Journal, by Andy Kessler

Original Article

Posted By:Desert Fox, 4/9/2013 8:02:09 PM

It has been said that an actuary is someone who really wanted to be an accountant but didn´t have the personality for it. See who´s laughing now. Things are starting to get very interesting, actuarially-speaking. Federal bankruptcy judge Christopher Klein ruled on April 1 that Stockton, Calif., can file for bankruptcy via Chapter 9 (Chapter 11´s ugly cousin). The ruling may start the actuarial dominoes falling across the country, because Stockton´s predicament stems from financial assumptions that are hardly restricted to one improvident California municipality.

      


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Reply 1 - Posted by: NYBruin, 4/9/2013 8:18:02 PM     (No. 9267683)

Math is hard. Spending money is easy. Therein lies the problem.

PS - thank our wonderful public schools for the general public´s inability to understand this! /s

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Reply 2 - Posted by: engrpat, 4/9/2013 8:18:35 PM     (No. 9267684)

This has been known for years and California politicians have been defrauding the citizens of the state to satisfy labor unions. The public pension problem will only get worse. For California there are only two possible solutions (that they will live with), tax the rich more or just raise everyone´s taxes including business. As the dems say, it isn´t a spending problem it is a taxing problem.

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Reply 3 - Posted by: Objectivity, 4/9/2013 8:44:43 PM     (No. 9267710)

Last week after the decision, Martin Armstrong was all over this within 48 hours.

And he pointed out the irony of the pensions (poster child here- CALPERS) being the dark force providing the dynamic to jettison the entrenched collective bargaining agreements. Of course the LATimes and NYTimes cannot report such reality

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Reply 4 - Posted by: Blue-Z-Anna, 4/9/2013 8:46:03 PM     (No. 9267711)

Consider the dilemma of the left-wing accounting student.

He knows it´s crazy and impossible ( to believe in leftist ideas) but he also knows that it´s so much easier to get laid in college as a liberal.

The conservative girls are so.....well you know.

Fortunately....(IMHO)....white male conservatives are very close to that point in their personal reincarnation progress that they may not have to return to this planet again. A truly self-sufficient, independent,
sweet and loving person need not be subjected to this ship of fools too many more times.

( I Hope ).

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Reply 5 - Posted by: obviousity, 4/9/2013 8:56:48 PM     (No. 9267723)

The 8% interest rate assumption dates to the Carter era. Treasuries were yielding 15-20% and the actuaries at the time were still using 5% [because it worked well over lifetimes.] The IRS wanted to grab money from those wealthy employers by taking away big tax deductible contributions by forcing the use of 8%. Well history is repeating. When Ben Bernanke´s monetary expansion kicks inflation up to double digits again, the many underfunded plans will have again have portfolios annually yielding double digits and the benefits will then be payable in "monopoly money." The union workers will have cast all necessary votes by then for Obama and Brown to be emperors for life.

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Reply 6 - Posted by: VAPMAN, 4/9/2013 8:59:15 PM     (No. 9267726)

To bad we all can´t work for the government or school systems and collect multi hundred thousand dollar a year pensions for life after retiring at age 55. That´s the Obama utopia isn´t it. Everybody works for the government and gets rich off printed money.

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Reply 7 - Posted by: Michaelus, 4/9/2013 9:18:31 PM     (No. 9267752)

They are going to confiscate our IRAs before they cut the pensions "owed" to unionized Government tax feeders.

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Reply 8 - Posted by: beancounter, 4/9/2013 9:43:50 PM     (No. 9267779)

Two points:

1. In 1999 California legislators and governor Gray Davis decided to enrich the benefits paid out by CalPers. They claimed it wouldn´t cost cities anything because they projected that the rate of return of the late 90´s would continue on for the foreseeable future. At a minimum, retirement benefits should be reset back to what it was before this raid.

2. Private pensions are in better shape than public pensions because private pensions combine unrealistic rates of return with unrealistically low interest rate assumptions, which forced private companies to contribute billions more to their pension plans than they would need if interest rates go up.

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Reply 9 - Posted by: Axeman, 4/9/2013 10:18:28 PM     (No. 9267799)

Great article. I love how he points out that you can´t wish these accounting problems away by changing how you count.
And the LoFos are wondering if 0bama will sing on The Voice.
We are so doomed.

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Reply 10 - Posted by: grounded, 4/9/2013 10:47:59 PM     (No. 9267819)

California´s shortfall is chickenfeed compared to the 60-odd TRILLION of dollars uf unfunded liabilities the US government has amassed. Federal pensions and retirement goodies and military veteran´s benefits comprise the bulk of this monstrosity. Like people iterate and reiterate, if a private enterprise organized its affairs as judiciously as our enlightened US government, the managers thereof would be serving long, long prison sentences. Think Bernie Madoff long.

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Reply 11 - Posted by: bob913, 4/9/2013 11:20:45 PM     (No. 9267836)

GM expected returns of 14%-16%!!!!!!
Borrowed $505 million! and invested in a Missouri farm raising genetically engineered pigs!

No wonder GM went bankrupt!

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Reply 12 - Posted by: Trigger2, 4/10/2013 7:05:12 AM     (No. 9268036)

I´d like to know the demonrat GM and demonrat pig farm relationship was. You know, one set of demonrats enriching another demonrat at the expense of everyone else.

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