Friday, June 29, 2012

New rules for public pension plans

Apparently a version of "mark to market" is coming to public employee pension plans. The Wall Street Journal published a story last weekend on the new accounting rules for public pension plans:

"New accounting rules are likely to show that public pension plans could face hundreds of billions of dollars in additional liabilities, putting new pressure on state and local governments to act.

The revamped rules expected to be approved Monday by an accounting-standards group will force governments to record pension costs sooner than they did before and disclose shortfalls more prominently. The changes also will force some public pension funds to calculate retirement benefits using more conservative assumptions....

The exact impact of the new rules by the Governmental Accounting Standards Board isn't clear. According to researchers at Boston College, pension liabilities at 126 state and municipal pension plans would jump by roughly $600 billion, or about 18%. The estimate is based on 2010 financial data and doesn't reflect the stock market's recent rebound or moves by many U.S. states to rein in pension costs.

Even with those improvements, the accounting changes are expected to increase total public-pension liabilities substantially when they take effect starting in 2013.

Many state pension managers downplay the impact of the new rules, arguing that the changes will merely affect how pension numbers are reported, and not the substance of the plans' conditions.

Some economists and lawmakers have pushed for tougher rules for years. "We think we've struck the appropriate balance that will result in some improvements in accounting and financial reporting," says GASB Chairman Robert Attmore.

The new rules won't in themselves force cities and states to refill their pension coffers or slash benefits, but they will underline the widening funding gap many of the nation's largest public plans face.

More than 40 states have already moved to trim pension costs since the financial crisis by raising contributions from employees or cutting back benefits for new workers, often after wrenching political debates.

Some officials expect renewed political pressure to end the guaranteed pension benefits that are now received by about eight million retired public workers across the U.S. "Those attacks have occurred prior to the [GASB changes] and I can only anticipate that they will be amplified,'' says Thom Williams, executive director of the Wyoming Retirement System.

Some pension officials said they don't plan to make drastic changes based on GASB's decision. For example, many pension officials plan on using two sets of numbers when calculating pension obligations: one for official reporting purposes and another to determine taxpayers' pension bills. GASB's new rules would allow that.

"It's an accounting change; that is all it is,'' says Andrew Pratt, a spokesman for New Jersey Treasurer's office. "New Jersey still has complete control over how the assumptions in its pension plans are set."

"We will have to go spend time and explain it and not have people overreact to the numbers," said North Carolina Treasurer Janet Cowell.

The changes follow more than four years of research and deliberation by GASB, a private-sector body recognized by governments, markets and the accounting industry as the official source for public-sector accounting rules.

The new rules won't alter the pension benefits that governments pay, and they won't directly affect how much governments contribute to their pension plans. GASB says its move is aimed at separating the accounting for pension plans from decisions on how to fund them.

But the discrepancy between the two sets of numbers could put renewed pressure on governments to close the funding gap.

"Are there going to be renewed discussions about contribution levels? That's very likely," said David Kausch, chief actuary at Gabriel Roeder Smith & Co., a benefits-consulting firm.

Last December, Mr. Kausch warned trustees overseeing the Illinois University system pension plan that the GASB changes could create "sticker shock."

Under the revised rules, pension officials will have to measure assets based on market values, which could cause numbers to swing from year to year.

The Center for Retirement Research at Boston College estimated that the changes would cause the group of 126 pension plans it analyzed to fall to 57% funded—that is, their assets would cover 57% of their obligations—from 76% in 2010.

In Illinois, the funding level of pensions for university employees would slip to 40% from 46%, according to the Boston College analysis.

A spokeswoman for the university fund declined to comment on that estimate.

"I hope it reinforces the need to do something,'' says Tom Cross, Illinois House Republican leader. "I still think there are people who are not accepting the reality of the situation."

Critics say the GASB changes don't go far enough, particularly in the way states will have to calculate pension liabilities that stretch over several decades.

To make that calculation, pension plans use a "discount rate"—an interest-rate assumption to determine how much future benefit payments are worth in today's dollars.

Public pension plans use the rate of return they expect on their investments, typically around 8%.

The lower the discount rate, the higher the obligations' current value—and higher obligations mean a bigger funding gap.

GASB's new rules would force underfunded plans to use a lower rate for some of their obligations.

But the overall government rate wouldn't be as low as the 4% to 5% rate that corporate pension plans use.

In recent years, many state pension systems with the largest funding gaps have skipped or made only a portion of their annual contributions.

Mr. Attmore, the GASB chairman, said "decisions regarding funding of pensions are appropriately the domain of elected officials who determine how to allocate limited resources among various competing interests in the government budget process."


Shadowfax said...

Not to worry. As soon as Pelosi takes back the house, they will come out with a bill to correct these pension ills.

Anonymous said...

That's right - they will just ask the Fed to print enough bills to correct any shortfalls and everything will be wonderful.

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).

Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.

In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS