5 ms·

If I paid for WSJ and this is the low quality journalism I got I'd be peeved. This article barely touches on how it got to be so bad. Excuse me but no - a singl

If I paid for WSJ and this is the low quality journalism I got I'd be peeved. This article barely touches on how it got to be so bad. Excuse me but no - a single paragraph stating the obvious 'benefits promised were too rich' doesn't cover it. How is it possible that a solvency ratio can drop from 100% to 75% in 18 years? This doesn't just happen because eh seemingly every pension administrator just decided. How much does WSJ cost again?

ilikehurdles 8y ago
>How much does WSJ cost again? It cost Rupert Murdoch some part of $5billion when he bought Dow Jones for that price.
spullara 8y ago
Cash accounting.
ngould 8y ago
Care to enlighten us pension finance non-experts on what the article misses?
- aurailious 8y ago
  Laws were changed to intentionally weaken pension funds and then articles like this are funded to further destabilize trust in them. Another way of saying it: rich people were unhappy they have to pay taxes.
  - DuskStar 8y ago
    Wow, I didn't know that the anti-pensioners had so much influence in California! Another way of saying it: I don't think your summary is particularly fair or accurate.
    - SamReidHughes 8y ago
      They passed Prop 13.
    - tomjakubowski 8y ago
      The anti-pensioners' historical influence is enshrined in the California constitution, Article XIII A. https://ballotpedia.org/Article_XIII_A,_California_Constitution https://ballotpedia.org/Article_XIII_A,_California_Constitut...
  - anonuser123456 8y ago
    Sounds rather conspiratorial. You should provide some evidence for such a claim.
  - lotsofpulp 8y ago
    More like politicians and union bosses lobbied for taxpayer funded pensions to be exempt from laws like ERISA and PPA so that they could play games with the pension fund money and purchase votes from the union members without stating real benefit costs.
- safgasCVS 8y ago
  The thing is solvency ratios should move like icebergs. Demographics, life expectancy and salaries don't change that quickly. Ok so stock markets move but reviews should be annual to allow for course corrections. So seeing it get so bad in such a short amount of time is a bigger story
rayiner 8y ago
Three major reasons are: 1) deferred/missed contributions; 2) expenses growing faster than originally expected, due to benefit increases and rising healthcare costs; and 3) unrealistic projections of future return that are being revised downward over time to be more realistic.
- Spooky23 8y ago
  2 isn’t in scope of pension obligations. 3 is arguable. They usually look for 7%
repsilat 8y ago
This topic comes up in the WSJ every couple of months. Not every article can cover every side of the story, and this particular piece isn't aimed at the underlying causes -- it's not an exhaustive or investigative history, it's analysis on the recent/current figures.
taurath 8y ago
What I can't understand is that the stock market in the past 8 years has been one of the best in history. Wouldn't that make up for losses somewhat, and what would happen if the market tanked during that time?
- ghein 8y ago
  Many pensions have ambitious assumptions of 7 or 8% annual returns. S&P went from 1565 Oct 07 2007 to 735.09 Feb 27 2009. We're now up to 2818 but if we had delivered 8% since october 07 we'd be at 3649 by this Oct 5. So we're 28% short! If you use S&P peak in 2000 it's 1552 and to deliver 8% since then we'd need to be at 6209!!! Catching back up to steady state growth, especially after a 50% loss, is unfathomably hard! What makes it worse is that the present value of obligations skyrocketed as interest rates went to 0. In 07 the Fed Funds rate was 4.5% and it's currently 2%. This rate was 0.25% until the end of 2015. For a payout of $50k per year for 10 years, ten years in the future, the present value is $481,031 at 0.25%, $368,442 at 2%, and $254,761 at 4.5%. So the current obligation is 44% higher than it was in 07 and the amount of money is 28% lower than expected. And this is AFTER the S&P has had an incredible run from 735 to 2818!
Spooky23 8y ago
One reason is that many places changed the actuarial tables. Average life expectancy is higher than it was, driven by improvements in outcomes and more women at work. Another is that monetary policy has made fixed income securities a low yield investment. Funds need to diversify and add risk. Another reason is that folks writing these things assume workers work a full career. The reality today is that many government workers start in their 30s and 40s, and only get the rich benefits if they work until their late 60s. That neutralizes the problem, as they will be dead sooner. Personally, I think the WSJ and other anti-pension people overplay the liability. The drivers of pension expenses are police and firefighters, and these (mostly) guys tend to die young. They also tend to report on the problem in masse, while it varies from outright disaster (Illinois) to Oregon, which is overfunded.
- randysavage 8y ago
  Many also retire young. My firefighter buddy will retire well before his 50th birthday and collect >$100k/yr in a relatively low COL state. He's in good shape, physically and mentally. He could easily live to 90, no problem. Good for him, but not great for taxpayers.
  - jdhn 8y ago
    >My firefighter buddy will retire well before his 50th birthday and collect >$100k/yr How is this possible? The state that he lives in hasn't changed the rules for vesting/collection? That seems like an absurd amount of money for what I'm assuming is a career that's lasted less than 30 years.
    - Spooky23 8y ago
      Most public safety people can retire at half pay with 20 years, and it goes up year by year, usually capping at 60-70% of the average salaries of the last 3-5 years. Many contracts don't cap overtime with respect to pension calculations. If you join at 18, at 50 you'll have 32 years, which in many departments means seniority to get alot of overtime. It's a decision that the municipality makes -- they understaff to preserve cash and dump the longer-term problem on the bigger pension fund. The early retirement is important, as the life expectancy for police/fire drops significantly based on retirement age. But the polices re: overtime as it impacts pensions are often too generous. These issues are "fixed" for normal employees in most places -- for example in NY non-public safety employees and teachers have caps (~10%) on how much your salary can increase for pension purposes and either eliminate or cap how overtime applies. My wife worked for a public employer who had a way to let overtime go into an optional 401k-type plan at a higher rate so that blue collar employees would have an easier time retiring on time. (Many blue collar folks basically depend on OT)
mi100hael 8y ago
I see no fewer than four paragraphs indicating it was a combination of over-promising benefits, longer lifespans, higher medical costs, boomers retiring at the same time, and poor portfolio performance. I'm quite satisfied with my subscription.
listenallyall 8y ago
If you subscribed to the WSJ you wouldn't be reading one article in isolation, and you'd already be well-informed about this issue, because the paper has regularly covered it (due to its massive impact) in various forms for decades.
- safgasCVS 8y ago
  That's a fair response - I don't have a sub so can't say how much they covered it

ilikehurdles 8y ago

>How much does WSJ cost again? It cost Rupert Murdoch some part of $5billion when he bought Dow Jones for that price.

spullara 8y ago

Cash accounting.

ngould 8y ago

Care to enlighten us pension finance non-experts on what the article misses?

aurailious 8y ago
Laws were changed to intentionally weaken pension funds and then articles like this are funded to further destabilize trust in them. Another way of saying it: rich people were unhappy they have to pay taxes.
- DuskStar 8y ago
  Wow, I didn't know that the anti-pensioners had so much influence in California! Another way of saying it: I don't think your summary is particularly fair or accurate.
  - SamReidHughes 8y ago
    They passed Prop 13.
  - tomjakubowski 8y ago
    The anti-pensioners' historical influence is enshrined in the California constitution, Article XIII A. https://ballotpedia.org/Article_XIII_A,_California_Constitution https://ballotpedia.org/Article_XIII_A,_California_Constitut...
- anonuser123456 8y ago
  Sounds rather conspiratorial. You should provide some evidence for such a claim.
- lotsofpulp 8y ago
  More like politicians and union bosses lobbied for taxpayer funded pensions to be exempt from laws like ERISA and PPA so that they could play games with the pension fund money and purchase votes from the union members without stating real benefit costs.
safgasCVS 8y ago
The thing is solvency ratios should move like icebergs. Demographics, life expectancy and salaries don't change that quickly. Ok so stock markets move but reviews should be annual to allow for course corrections. So seeing it get so bad in such a short amount of time is a bigger story

rayiner 8y ago

Three major reasons are: 1) deferred/missed contributions; 2) expenses growing faster than originally expected, due to benefit increases and rising healthcare costs; and 3) unrealistic projections of future return that are being revised downward over time to be more realistic.

Spooky23 8y ago
2 isn’t in scope of pension obligations. 3 is arguable. They usually look for 7%

repsilat 8y ago

This topic comes up in the WSJ every couple of months. Not every article can cover every side of the story, and this particular piece isn't aimed at the underlying causes -- it's not an exhaustive or investigative history, it's analysis on the recent/current figures.

taurath 8y ago

What I can't understand is that the stock market in the past 8 years has been one of the best in history. Wouldn't that make up for losses somewhat, and what would happen if the market tanked during that time?

ghein 8y ago
Many pensions have ambitious assumptions of 7 or 8% annual returns. S&P went from 1565 Oct 07 2007 to 735.09 Feb 27 2009. We're now up to 2818 but if we had delivered 8% since october 07 we'd be at 3649 by this Oct 5. So we're 28% short! If you use S&P peak in 2000 it's 1552 and to deliver 8% since then we'd need to be at 6209!!! Catching back up to steady state growth, especially after a 50% loss, is unfathomably hard! What makes it worse is that the present value of obligations skyrocketed as interest rates went to 0. In 07 the Fed Funds rate was 4.5% and it's currently 2%. This rate was 0.25% until the end of 2015. For a payout of $50k per year for 10 years, ten years in the future, the present value is $481,031 at 0.25%, $368,442 at 2%, and $254,761 at 4.5%. So the current obligation is 44% higher than it was in 07 and the amount of money is 28% lower than expected. And this is AFTER the S&P has had an incredible run from 735 to 2818!

Spooky23 8y ago

One reason is that many places changed the actuarial tables. Average life expectancy is higher than it was, driven by improvements in outcomes and more women at work. Another is that monetary policy has made fixed income securities a low yield investment. Funds need to diversify and add risk. Another reason is that folks writing these things assume workers work a full career. The reality today is that many government workers start in their 30s and 40s, and only get the rich benefits if they work until their late 60s. That neutralizes the problem, as they will be dead sooner. Personally, I think the WSJ and other anti-pension people overplay the liability. The drivers of pension expenses are police and firefighters, and these (mostly) guys tend to die young. They also tend to report on the problem in masse, while it varies from outright disaster (Illinois) to Oregon, which is overfunded.

randysavage 8y ago
Many also retire young. My firefighter buddy will retire well before his 50th birthday and collect >$100k/yr in a relatively low COL state. He's in good shape, physically and mentally. He could easily live to 90, no problem. Good for him, but not great for taxpayers.
- jdhn 8y ago
  >My firefighter buddy will retire well before his 50th birthday and collect >$100k/yr How is this possible? The state that he lives in hasn't changed the rules for vesting/collection? That seems like an absurd amount of money for what I'm assuming is a career that's lasted less than 30 years.
  - Spooky23 8y ago
    Most public safety people can retire at half pay with 20 years, and it goes up year by year, usually capping at 60-70% of the average salaries of the last 3-5 years. Many contracts don't cap overtime with respect to pension calculations. If you join at 18, at 50 you'll have 32 years, which in many departments means seniority to get alot of overtime. It's a decision that the municipality makes -- they understaff to preserve cash and dump the longer-term problem on the bigger pension fund. The early retirement is important, as the life expectancy for police/fire drops significantly based on retirement age. But the polices re: overtime as it impacts pensions are often too generous. These issues are "fixed" for normal employees in most places -- for example in NY non-public safety employees and teachers have caps (~10%) on how much your salary can increase for pension purposes and either eliminate or cap how overtime applies. My wife worked for a public employer who had a way to let overtime go into an optional 401k-type plan at a higher rate so that blue collar employees would have an easier time retiring on time. (Many blue collar folks basically depend on OT)

mi100hael 8y ago

I see no fewer than four paragraphs indicating it was a combination of over-promising benefits, longer lifespans, higher medical costs, boomers retiring at the same time, and poor portfolio performance. I'm quite satisfied with my subscription.

listenallyall 8y ago

If you subscribed to the WSJ you wouldn't be reading one article in isolation, and you'd already be well-informed about this issue, because the paper has regularly covered it (due to its massive impact) in various forms for decades.

safgasCVS 8y ago
That's a fair response - I don't have a sub so can't say how much they covered it