Acutaries on Pensions, & Housing

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sardia
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Acutaries on Pensions, & Housing

Postby sardia » Sun Sep 18, 2016 2:34 pm UTC

http://www.nytimes.com/2016/09/18/busin ... f=business
When one of the tiniest pension funds imaginable — for Citrus Pest Control District No. 2, serving just six people in California — decided last year to convert itself to a 401(k) plan, it seemed like a no-brainer. After all, the little fund held far more money than it needed, according to its official numbers from California’s renowned public pension system, Calpers.
Except it really didn’t. In fact, it was significantly underfunded. Suddenly Calpers began demanding a payment of more than half a million dollars. It turns out that Calpers, which managed the little pension plan, keeps two sets of books: the officially stated numbers, and another set that reflects the “market value” of the pensions that people have earned. The second number is not publicly disclosed. And it typically paints a much more troubling picture, according to people who follow the money. it raises serious concerns that governments nationwide do not know the true condition of the pension funds they are responsible for. That exposes millions of people, including retired public workers, local taxpayers and municipal bond buyers — who are often retirees themselves — to risks they have no way of knowing about. The two competing ways of valuing a pension fund are often called the actuarial approach (which is geared toward helping employers plan stable annual budgets, as opposed to measuring assets and liabilities), and the market approach, which reflects more hard-nosed math.

The market value of a pension reflects the full cost today of providing a steady, guaranteed income for life — and it’s large. Alarmingly large, in fact. This is one reason most states and cities don’t let the market numbers see the light of day.

Turns out the entire pension system is underfunded. It's a bit arcane, and I think they're assuming one rate of return of a Treasury bill, and the other assumes a market gain of 7% a year. That's double the rate of return, which means pension budgets look really nice, when in reality are underfunded, and under-contributed. A tiny pension just found that out, and which reveals danger signs for pensions(and municipal bonds that backed the pensions) across the country. Not just retirees are in danger, investors in the bonds are in danger too. If anybody could clarify, that would be great.
Last edited by sardia on Thu Sep 22, 2016 5:51 am UTC, edited 2 times in total.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby morriswalters » Sun Sep 18, 2016 4:08 pm UTC

What's the problem? There are liars and damn liars. Where money is involved everybody is a damned liar. But putting that aside what exactly isn't clear to you? It seemed straightforward to me.

The use two different assumptions. One optimistic the other pessimistic. The pessimistic assumption is closer to reality since it reflects what the account is worth if you cash out today. The optimistic assumption is what they sell governments whom they would like to have put money into their funds. The optimistic number reflects what could happen in 30 years, if everyone wears smiley faces and everything is good. The money wasn't there for Citrus Pest Control District No. 2 when the shares were sold, they got the market price.

I assume that they already had people on pensions that wouldn't have been affected by the move to a 401k. That is case 1. Those pensions have to be paid even when there are no more payments from the Citrus Pest Control District No. 2. And the money from the Citrus Pest Control District No. 2 had never grown as the optimistic actuarial projections had said they would so current payments were in deficit. Case number 2, it appears that Calper reimbursed them at the optimistic rate so they had to claw back some of those dollars because they didn't reflect the market price at settlement. So the Citrus Pest Control District No. 2 then learned the difference between lies and damned lies.

You get an earful on this if you start to cash out of a 401k. You will be incessantly reminded of the difference between the stated account balance and the selling price. However your 401k is valued at the market price. Someone else will probably explain it better.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby KnightExemplar » Sun Sep 18, 2016 4:46 pm UTC

Turns out the entire pension system is underfunded

[snip]

A tiny pension just found that out, and which reveals danger signs for pensions(and municipal bonds that backed the pensions) across the country



Uhhhh. No.

At very worst, this article is talking about CalPERS, and levies some strong accusations against them. But the article provides no accusations against say... UFCW Midwest.

Welcome to America, we have a different system for everybody. 50 States does that. Anything discussed in this article only applies to CalPERS (California Pension Fund).

Even then, I have my doubts that things are as bad as you say. Although, pensions are simply ridiculous: you cannot promise a stable income for life for millions off of market returns. One way or the other, people are going to get screwed. After all, all pension funds are just going to invest the money into the market anyway. Why have a middleman at all?

Its best if we all convert to 401k plans and accept the risk ourselves. Pension plans made sense before the age of computers: pooling together a pile of money to invest together meant cheaper transaction fees. (Stock Trades used to cost hundreds of dollars + a % commission each trade, before the age of discount brokers in the 1980s)

But today, with easy financial instruments like passive index funds, and easy online accounts that can track everybody's money, and like $7 trades, if you can save up like $5000 it basically makes sense to just handle the money yourself (as opposed to the 1970s when you needed hundreds of thousands of dollars to overcome the commissions, and then hundreds of investments for proper diversity. Before the age of passive index funds, it probably was very difficult to achieve diversity, while today its possible to get diversity from just buying VTI)

---------------

But even then, this article only applies to CalPERS based pension funds, which is limited to the state of California at best. And since most private employers use 401k plans, the effect is basically limited to California Public Employees. Probably California police officers, firemen, and the like. (California teachers apparently get their pension from CalSTRS, and are therefore not affected by this article)
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Re: Acutaries Cooked The Books on Pensions, Legally

Postby CorruptUser » Sun Sep 18, 2016 5:31 pm UTC

Actuary here. Must...contain...rage...at...NYTimes...

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby morriswalters » Sun Sep 18, 2016 6:10 pm UTC

KnightExemplar wrote:At very worst, this article is talking about CalPERS, and levies some strong accusations against them. But the article provides no accusations against say... UFCW Midwest.
Why UFCW would have anything to do with government pensions is beyond me since they seem to be a union organization. Come to the Thoroughbred State. The worst public pension plan in the country, we are not allied with the state of California, we are however underfunded to a significant degree. The quote I'm posting is illustrative of that number.
In fiscal 2015 and beyond, the state also committed to make full payments. If Kentucky receives that money and earns its 7.5 percent estimated rate of return, its funding ratio may still shrink to as low as 15 percent in coming years, though it will climb back to 100 percent over 30 years, Thielen said.
See that 7.5 number? Now from Sardia's article.
But the rest of the time, Calpers and virtually all other public pension funds use their assumed annual rate of return on assets, now generally around 7.5 percent. Presto: This makes a pension appear to have a much smaller liability — or even a surplus.
Damn, what a coincidence.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby Zamfir » Sun Sep 18, 2016 7:31 pm UTC

After all, all pension funds are just going to invest the money into the market anyway. Why have a middleman at all?

Simple answer: because you do not know when you'll die. The same principle as for any insurance. For an individual, age of death is a larger uncertainty for their retirement planning than anything related to investments. For a pool of any reasonable size, it's a calculable and manageable technicality.

There are various ways to organise that pool. Pension funds, insurer annuities, government-run PAYGO schemes. But there's always a middleman, if you want the advantages of risk pooling.

Sellf-insurance (what your proposed VTI strategy comes down to) is inefficient - it's extra risk without extra returns.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby CorruptUser » Sun Sep 18, 2016 7:44 pm UTC

Not to mention the issue plaguing the pensions has been that you inconsiderate jerks didn't die as soon as you were projected to. Life expectancy has increased by 1 month every year for quite some time, but the retirement age has not kept up with that because while people live longer, they aren't much healthier. And the pension firms didn't want to adjust their assumptions to reflect this because they get undercut by competitors.

Another issue was rising women's wages and increase in the labor force. Women live longer, so they get a fatter pension by default. And since pensions usually can't discriminate by gender, well, that was another assumption that wasn't updated. Also part of why women get paid less than men, along with health insurance.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby morriswalters » Sun Sep 18, 2016 9:15 pm UTC

CorruptUser wrote:Not to mention the issue plaguing the pensions has been that you inconsiderate jerks didn't die as soon as you were projected to. Life expectancy has increased by 1 month every year for quite some time, but the retirement age has not kept up with that because while people live longer, they aren't much healthier. And the pension firms didn't want to adjust their assumptions to reflect this because they get undercut by competitors.

Another issue was rising women's wages and increase in the labor force. Women live longer, so they get a fatter pension by default. And since pensions usually can't discriminate by gender, well, that was another assumption that wasn't updated. Also part of why women get paid less than men, along with health insurance.
Which is all true, but which has nothing in it to dispute the article which said the forward facing numbers aren't reflective of the truth. What exactly threw you into a rage?

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Sun Sep 18, 2016 11:06 pm UTC

Mostly the line in the middle "actuaries project the pension expecting the retirees to live to 90" or whatever. Ok, no, no actuary does this, and so the NY Times is talking out of its ass. This is the "igon value" problem; journalists aren't mathematicians and should rarely be trusted when talking about math.

The most basic tenet of actuarial science is PV = sum(Bt*tPx*V^t). In laymens terms, the present value equals the sums of the products of the benefit at time t, the odds of the person aged X living to time t, and the present value of a dollar at time t.

Now, actuaries do sensitivity testing. "What if the mortality rate is lower than expected" is something we'd test, but it is NOT the number we'd use for submission. That's what the NY Times grabbed, the "worst case" scenario, as of that was the expected value.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby sardia » Sun Sep 18, 2016 11:52 pm UTC

CorruptUser wrote:Not to mention the issue plaguing the pensions has been that you inconsiderate jerks didn't die as soon as you were projected to. Life expectancy has increased by 1 month every year for quite some time, but the retirement age has not kept up with that because while people live longer, they aren't much healthier. And the pension firms didn't want to adjust their assumptions to reflect this because they get undercut by competitors.

Another issue was rising women's wages and increase in the labor force. Women live longer, so they get a fatter pension by default. And since pensions usually can't discriminate by gender, well, that was another assumption that wasn't updated. Also part of why women get paid less than men, along with health insurance.

Did you just admit that actuaries are sexists and connect longer lifespans to lower wages? Because I knew you were Conservative but damn you're offensive today.

Anyway is the worst case scenario more realistic than the optimistic case?

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Sun Sep 18, 2016 11:53 pm UTC

I understand the point your are making. However if the rate that Calpers had used reflected anything like what the market was expected to produce by whatever instruments they used, there wouldn't have been a 447 thousand dollar shortfall. Calpers used different numbers to get business versus the number they used to make sure that if you cashed out they didn't get left holding the bag. That is to say that for the people already in the system retired, there wasn't enough money from the payments to the system to that point to be sure that current retirees could be paid no matter what kind of actuarial number you used. That rate turned out to be less than 3 percent in today's dollars.

No matter what assumptions were made by the actuaries the fund was sold at the higher number, 7.5 percent. The difference between those numbers means the pension was underfunded, or Calper thought it was, and the example company hadn't been paying enough. That may or may not be the actuaries fault, more likely it's the optimistic thinking politicians do when they want something they don't wish to actually pay for. And this is a given in Kentucky, and they use that same 7.5 percent rate. I'm sorry that news people don't make good actuaries or mathematicians, but I would point out that is also true of their target audience. Somebody is failing the public.

The only thing unclear in my mind is the buy in. At what point has the fund collected sufficient funds to take care of people who have entered the plan. That is, would the buyer of the service,(the local municipality) have to pay more at the outset to cover people entering the plan who were close to retirement?

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby CorruptUser » Mon Sep 19, 2016 12:06 am UTC

sardia wrote:
CorruptUser wrote:Not to mention the issue plaguing the pensions has been that you inconsiderate jerks didn't die as soon as you were projected to. Life expectancy has increased by 1 month every year for quite some time, but the retirement age has not kept up with that because while people live longer, they aren't much healthier. And the pension firms didn't want to adjust their assumptions to reflect this because they get undercut by competitors.

Another issue was rising women's wages and increase in the labor force. Women live longer, so they get a fatter pension by default. And since pensions usually can't discriminate by gender, well, that was another assumption that wasn't updated. Also part of why women get paid less than men, along with health insurance.

Did you just admit that actuaries are sexists and connect longer lifespans to lower wages? Because I knew you were Conservative but damn you're offensive today.

Anyway is the worst case scenario more realistic than the optimistic case?


Conservative? Hardly. As for gender and pensions, the numbers are what they are. Women get in fewer accidents. Therefore their car insurance is lower. Women live longer. Therefore they pay lower rates for life insurance, except in I think Utah. At the same time, women living long means that their pensions need larger reserves. And since women are making up an increasing percentage of the workforce and the pay gap is decreasing (pensions based on pay), this means that reserves need to increase. Unlike life insurance, pensions can't directly charge different rates for men and women. So this means higher contributions for the "same" benefit.

This has an indirect impact on employers; hiring women means that they are hiring employees with higher health insurance and higher pension costs, and like it or not it WILL make its way into the hiring decision. If there ever was an argument for universal health care (and government run pensions), this is it.

Please, tell me what is sexist about what I said?

Oh and found this. How much does health insurance impact wage gap? 10% is caused by health insurance. Link

I'm sure you could find something similar for pensions. The rest is likely a combination of other factors, especially institutional sexism. But I do not like being insulted for things that aren't wrong just because they conflict with oversimplified notions of how the world works.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby KnightExemplar » Mon Sep 19, 2016 4:14 am UTC

CorruptUser wrote:Please, tell me what is sexist about what I said?


https://en.wikipedia.org/wiki/Sexism

Sexism or gender discrimination is prejudice or discrimination based on a person's sex or gender.


But yes, actuaries, statisticians, and biologists discriminate males from females regularly. Females have kids, males do not. Females have certain attributes that males do not. Like living longer.

Its difficult to talk about these issues, but the math and statistics don't really lie. So... yeah, I'd just say its definitely "technically" sexism (aka: discriminating on sex) but its supported by physical facts.

---------------

With that said, I think its a bit of a stretch to try and tie this into the wages between males and females.
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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Mon Sep 19, 2016 5:12 am UTC

Except as the link I provided basically said, a full 10% of the overall wage gap in the US is due to employer provided health insurance. I'd imagine an even bigger chunk is due to pensions, a relative tiny chunk due to maternity leave, and the lion's share being institutional racism.

-------

Getting back to the pensions, using the 30 year bond rate of 2.38% is just plain wrong because unless the pension funds are being invested in long term bonds the expected rate of return on their investments is definitely going to be greater than this. I wouldn't go as high as 7.5%, but a more conservative 7% as this is more consistent with market rates of return. Of course, "pension plan slightly off" isn't a story that sells papers.

I'm more surprised about Sharpe than anything. That guy basically created 1/3 of the material on my MFE exam.

Something else too as an industry thing; most young actuaries are avoiding the pension field like it's the plague. We all see the writing on the wall; the pension plans are disappearing one by one and being replaced by 401k's. There is no place for us there.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Zamfir » Mon Sep 19, 2016 6:41 am UTC

Getting back to the pensions, using the 30 year bond rate of 2.38% is just plain wrong because unless the pension funds are being invested in long term bonds the expected rate of return on their investments is definitely going to be greater than this.

On this particular story, I found the following piece. I can't judge how accurate it is, though it sounds credible:
Spoiler:
Article
[...]
We’ll get into the details shortly, but let’s debunk the two Big Lies at the heart of this article. First, CalPERS does not keep different sets of records. The pension fund has a very conservative, arguably punitive, methodology, which is enshrined in law for how to determine how much government entities that contract with CalPERS owe when they exit the pension system. As we’ll discuss, there are good reasons for discouraging exit. Second, the termination amount has been disclosed for every plan on CalPERS site since 2011, and prior to that, CalPERS would provide that information if an employer asked for it.

In other words, the failure of the six-employee Citrus Pest Control District No. 2 (CPCD), the itty bitty pension fund at the heart of this story, to access public information is being presented as some sort of nefarious plot. It had an overfunded pension, wanted to leave, but found that the method that CalPERS used to determine its “termination liability” resulted in the district owing money to CalPERS, not vice versa.
[...]

If this is correct, then the use of treasury rates is confined to the specific case of employers who want to take their employees out of the Calpers system. It's basically a termination fine.


I don't know if this is common in other countries, but the central bank in the Netherlands sets a calculation interest rate for pension funds. (technically a schedule for different time horizons). Funds have to announce their coverage based on this calculation rate, no matter what rates they use internally. If the coverage rate is low (like below 110%), they get restrictions on their actions, such as a ban on indexations. And they have to show a plan to get back to a comfortable coverage rate.

As you can imagine, this leads to heated discussions every time the regulatory system is changed, or when the calculation rate changes.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 10:58 am UTC

So the net result of this discussion is that either Calper cooked the books or Calper punished the group for leaving depending on who's telling the story. Was there another option on the table? Go Calper.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Zamfir » Mon Sep 19, 2016 12:47 pm UTC

A high termination fine is reasonable - a pension fund is not intended as a liquid investment vehicle.

Edit: if you click through, there is a PDF from 2013 that calculates the 'hypothetical termination fee' for the citrus people, in a document that was mailed to them .
In December 2012, the CalPERS Board adopted a more conservative investment policy and asset allocation strategy for the Terminated Agency Pool. Since the Terminated Agency Pool has limited funding sources, expected benefit payments are secured by risk-free assets. With this change, CalPERS increased benefit security for members while limiting its funding risk. This asset allocation has a lower expected rate of return than the PERF. Consequently, the lower discount rate for the Terminated Agency pool results in higher liabilities for terminated plans.

So, if an employer stopz paying into the fund (and therefore won't help cover shortfalls if they might arise), then calpers simply buys enough treasuries to cover its open liabilities towards the employees, and sends the bill for those treasuries to the employer. If the employer doesn't share in the risks anymore, then calpers won't take risks on their behalf. That's not so unreasonable.

Apparently, the CPCD expected calpers to pay out the projected future returns in advance. That's nice work if you can get it..

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 1:43 pm UTC

A simple, "if you do this, this will happen", when the two parties communicated at the divorce would have served. Not a billing 4 months after the fact. Done in that fashion the group in question would have been able to either delay their exit and plan for the future expense or make the choice to not exit given the cost. One is business, one looks putative. But I will admit to being kind of peculiar in my expectations of the people I do business with.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Zamfir » Mon Sep 19, 2016 2:13 pm UTC

Well, take a look at page 20
https://www.calpers.ca.gov/docs/actuarial-reports/2013/citrus-pest-control-district-no-2-of-riverside-county-miscellaneous-2013.pdf
It gives calculation examples (for this particular case!) about termination costs for different hypothetical dates in the past, with a highest number of $540,000 to pay. The added text is:
In order to terminate your plan, you must first contact our Retirement Services Contract Unit to initiate a
Resolution of Intent to Terminate. The completed Resolution will allow your plan actuary to give you a
preliminary termination valuation with a more up-to-date estimate of your plan liabilities. CalPERS advises
you to consult with your plan actuary before beginning this process.

This is public information (someone dug it up from the calpers website), and it was also sent to the district itself. Possibilities are:

-The district contacted calpers as described above, and calpers gave them the wrong number for termination. That's a clear error on the side of calpers, and the district should have the documentation to prove it.
- The district didn't have a clue and just terminated without asking questions. Calpers should have documentation to prove this.

Given that the district simply paid without a fight, the second possibility looks a lot more likely.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby Tyndmyr » Mon Sep 19, 2016 2:49 pm UTC

sardia wrote:
CorruptUser wrote:Not to mention the issue plaguing the pensions has been that you inconsiderate jerks didn't die as soon as you were projected to. Life expectancy has increased by 1 month every year for quite some time, but the retirement age has not kept up with that because while people live longer, they aren't much healthier. And the pension firms didn't want to adjust their assumptions to reflect this because they get undercut by competitors.

Another issue was rising women's wages and increase in the labor force. Women live longer, so they get a fatter pension by default. And since pensions usually can't discriminate by gender, well, that was another assumption that wasn't updated. Also part of why women get paid less than men, along with health insurance.

Did you just admit that actuaries are sexists and connect longer lifespans to lower wages? Because I knew you were Conservative but damn you're offensive today.

Anyway is the worst case scenario more realistic than the optimistic case?


It's fiscal fact. Not a statement on what should be, but on what is. If one gender has a longer lifespan but lower wages, pensions mostly equal out, but relatively, women's wages are rising, which does have some interesting impacts on pensions.

I mean, unless you're proposing something unlikely such as having a different retirement age for women, then one gender does end up largely subsidizing the other.

Money and lifespan differences do bring up some weird, sorta uncomfortable aspects, but it's a real thing, not merely some invented insult by CU.

Zamfir wrote:Apparently, the CPCD expected calpers to pay out the projected future returns in advance. That's nice work if you can get it..


Yeah, that's just unreasonable expectations there.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Mon Sep 19, 2016 3:40 pm UTC

Tyn, that's not quite right. Pensions are based in part on the contributions. If women pay less in they get less out, but as employer pensions do not charge different rates based on individual life expectancy, the short lived people still subsidize the long lived people. This subsidy is less noticeable when the longer lived people earn less and make up a smaller portion of the workforce, but as longer lived people enter the workforce in greater numbers and move into higher paid positions, the pension must adjust its assumptions or it will become insolvent.

It does create an interesting math calculation. You have two factories, factory M and factory F. Both have 1000 workers, and all workers are equally competent, and there are no jobs requiring large amounts of physical strength. Factory M is 100% male, and factory F is 100% female. All 2000 employees belong to the same union which has negotiated identical benefits. Will the factories have identical profits? F has employees on maternity leave, but M has more worker's comp cases. F has much higher health insurance costs, but M has much more expensive life insurance policies and auto insurance. And so on.

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby HES » Mon Sep 19, 2016 3:44 pm UTC

Tyndmyr wrote:something unlikely such as having a different retirement age for women

Not so surprising when that was very much the case in England until earlier this year.
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Re: Acutaries Cooked The Books on Pensions, Legally

Postby Tyndmyr » Mon Sep 19, 2016 3:52 pm UTC

Sorry, CU, didn't mean to imply that the relationship was simple, and definitely didn't describe it well there. My point was merely that you were addressing real fiscal changes, and that someone absolutely has to deal with these things. Covering our ears and shouting "sexism" isn't reasonable.

If someone *wants* the world to treat one gender worse, I'm quite comfortable in calling the sexist, but I don't think it's reasonable to insult people for mere acknowledgement of inequality.

HES wrote:
Tyndmyr wrote:something unlikely such as having a different retirement age for women

Not so surprising when that was very much the case in England until earlier this year.


Huh, didn't know that at all. It seems like that would be a very difficult thing to pass in the US. Anyone suggesting that women should work longer would probably be a political pariah.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 4:07 pm UTC

Zamfir wrote:- The district didn't have a clue and just terminated without asking questions. Calpers should have documentation to prove this.

Given that the district simply paid without a fight, the second possibility looks a lot more likely.
Yes, I agree. As I said, I have funny ideas about the obligations of the people I do business with. I'm not saying Calpers is the devil. I am simply saying that given the sum at risk and the relative levels of knowledge, that it seems that Calpers could have done better. Like reading the boilerplate in the letter to the man on the phone.

Just out of an excess of curiosity I researched the Citrus Board just for laughs and giggles.

Legal Authority: Board of Supervisors Resolution January 26, 1960 pursuant to Sections 8501, et seq. of Agricultural Code.
Membership Qualifications: Five members who are citizens of the United States and residents of the State of California and an owner of lands within the district which are devoted in whole or in part to the growing of citrus fruits.

Term: Four-year staggered term.

Duties: To eradicate, remove or prevent the spread of any and all citrus pests for the County of Kern.

Meeting Place and Time: 1901 South Lexington Street
Delano - Executive Conference Room

Meetings are held on an as-needed basis to be called by the Chair.

For meeting date and time, contact District's Accountant at (661) 631-1040 ext. 1
or the Central California Tristeza Agency at (559) 686-4973

Compensation: None.

Contact: Kern County Citrus Pest Control District
2010 Truxtun Avenue
Bakersfield, CA 93301-5013
(559) 686-4973 or (661) 631-1040 ext. 1
Gee whiz, damn them all for not catching this. Fire em all. No wait you can't, they aren't paid. Damn twice for trying to do right for their employees, all six of them. And apparently they are sexist since I didn't see any female sounding names among the employees.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Zamfir » Mon Sep 19, 2016 4:17 pm UTC

Damn twice for trying to do right for their employees, all six of them.

Were they, though? We can't tell from the article. It looks more like the district thought that it could cash out on it overfunded pension fund, with the excess money going to the district.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Chen » Mon Sep 19, 2016 4:39 pm UTC

How do you have a company pension plan when you're not paid?

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby HES » Mon Sep 19, 2016 4:48 pm UTC

Tyndmyr wrote:Anyone suggesting that women should work longer would probably be a political pariah.

Maybe not such a good comparison then, it was (or is, for those close to retirement) actually the case that women retire earlier.
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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 5:03 pm UTC

Zamfir wrote:
Damn twice for trying to do right for their employees, all six of them.

Were they, though? We can't tell from the article. It looks more like the district thought that it could cash out on it overfunded pension fund, with the excess money going to the district.
Possible certainly, although to return to the original point, if the administrators had known the true cost they wouldn't have made a money grab, since it turned out to be the reverse, they are out 400k. And if Calpers had quoted the letter to whoever made the contact there would have been no question and everybody would have come out whole. Again it comes down to knowledge. Six unpaid farmers versus a 700 billion dollar fund manager. Lies and Damn lies. And they did keep two sets of books. The set that absolutely must be right but which may cause over funding. The if you quit books. And the set for optimists who intend to stay in, which use a 7.5 percent return to market the service that Calpers markets.

In any case they are taking care of their workers by providing them a 401k. And the workers will know exactly where they stand. If not how to manage the choices they have to make.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Mon Sep 19, 2016 5:31 pm UTC

Citation needed that they actually kept the set of books, rather than it simply being in contract "if you terminate the fund it'll be priced at the 30 year bond rates".

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Re: Acutaries Cooked The Books on Pensions, Legally

Postby Tyndmyr » Mon Sep 19, 2016 5:37 pm UTC

HES wrote:
Tyndmyr wrote:Anyone suggesting that women should work longer would probably be a political pariah.

Maybe not such a good comparison then, it was (or is, for those close to retirement) actually the case that women retire earlier.


Ah, I understand. I could see such a thing existing as a legacy of paternalism or what not, and going to an equal time for retirement seems innately rather fair.

It's just that differing expected lifespans mean the average length of retirement happens to be quite different by gender. Going to have an impact from a retirement planning angle, or from a social services angle. Given demographic changes in working, various tweaks will probably have to be made on some level.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 6:45 pm UTC

CorruptUser wrote:Citation needed that they actually kept the set of books, rather than it simply being in contract "if you terminate the fund it'll be priced at the 30 year bond rates".
Zamfir wrote:
In December 2012, the CalPERS Board adopted a more conservative investment policy and asset allocation strategy for the Terminated Agency Pool. Since the Terminated Agency Pool has limited funding sources, expected benefit payments are secured by risk-free assets. With this change, CalPERS increased benefit security for members while limiting its funding risk. This asset allocation has a lower expected rate of return than the PERF. Consequently, the lower discount rate for the Terminated Agency pool results in higher liabilities for terminated plans.

Now I assume that they have books on this pool. This is a link from some ditty called Calpensions. Quality could be doubtful however someone seems to be keeping books on this TAP.(The absolutely can't fail fund.) So all the good people in TAP should be good to go. Dem der people don't have to worry, because they are well over funded.
CalPERS keeps a healthy surplus, and a lot of risk-free bond investments, in its Terminated Agency Pool. As of June 30, 2013, the pool had about 90 small plans, $78 million in future pension obligations, $194 million in assets and was 249 percent funded.
And then there is this initiative.
VOTER EMPOWERMENT ACT OF 2016

g) Retirement boards shall not impose termination fees, accelerate payments on existing debt, or impose other financial conditions against a government employer that proposes to close a defined benefit pension plan to new members, unless voters of that jurisdiction or the sponsoring government employer approve the fees, accelerated payment, or financial conditions.
So if they had used the smaller number to number to sell the plans they wouldn't be looking at this unrealistic initiative. And then government entities wouldn't have made unrealistic promises to their employees about what retirement was going to cost them. Of course then the legislature would have raided the fund, which according to the link they did anyway. Anyway I hope this answered you request for a citation.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby Tyndmyr » Mon Sep 19, 2016 7:06 pm UTC

This doesn't sound like two sets of books. This sounds like they picked a lower risk/lower reward strategy. And everyone is complaining now about the lower rewards.

Describing this as "cooking the books" still seems wildly inaccurate.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Mon Sep 19, 2016 7:12 pm UTC

Morris, that does NOT mean they actually have the value in the books somewhere.

Do you know what actuarial work is like? At all? Chances are it was something like "alright, group XYZ has decided to terminate, actuarial analyst, could you run the current pricing model using the current bond rates as the interest rate assumption?". They don't update every single model every single day; the second set of "seekret" books never actually existed until someone was asked to compute it.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 8:02 pm UTC

CorruptUser wrote:Morris, that does NOT mean they actually have the value in the books somewhere.

Do you know what actuarial work is like? At all? Chances are it was something like "alright, group XYZ has decided to terminate, actuarial analyst, could you run the current pricing model using the current bond rates as the interest rate assumption?". They don't update every single model every single day; the second set of "seekret" books never actually existed until someone was asked to compute it.
I plead ignorance against your training. And I accept that it is done precisely as you suggest. The point is that there are two funds. One with an assumption of around 2.5 percent and another with an assumption of 7.5. If I was the person seeking a plan I would want to be in the TAP plan. It's safer by definition. However the up front costs would be higher as would the monthly contributions. Because the plan uses very conservative projections to achieve its goals. Which was the point of the article and the reason for the big payoff. This is the part people don't want to hear and why a lot of public pensions are in the trash.

In fairness to you maybe I'm moving the goalposts because of my ignorance. If so I'm sorry.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby CorruptUser » Mon Sep 19, 2016 8:11 pm UTC

There was never two funds. The 2.38% is the valuation of the one fund using the bond rates, in order to determine the penalty for early withdrawal or whatever the actual facts of the case were.

There's a reason the fund is valued at the 7.5% instead of the 2.38%, though as I said I'd use 7% but that's me. Let's say instead of payments throughout, you just have a single lump sum payment to the pension fund. And when you retire, instead of a pension, you are given a fixed annuity from a third party. You are 35, you retire at 65. You give the pension company $100,000 now. They invest it in a well diversified portfolio. The stocks earn 7%. The pension company now has ~$760,000 from your deposit of $100,000. If it had been in 30 year bonds, that $100,000 would be $200,000. Should they give you an annuity worth $760,000, or should they give you an annuity worth $200,000? Or would you rather have given the pension company nearly $380,000 for the $760,000 annuity?

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby DanD » Mon Sep 19, 2016 9:34 pm UTC

morriswalters wrote:I plead ignorance against your training. And I accept that it is done precisely as you suggest. The point is that there are two funds. One with an assumption of around 2.5 percent and another with an assumption of 7.5. If I was the person seeking a plan I would want to be in the TAP plan. It's safer by definition. However the up front costs would be higher as would the monthly contributions. Because the plan uses very conservative projections to achieve its goals. Which was the point of the article and the reason for the big payoff. This is the part people don't want to hear and why a lot of public pensions are in the trash.

In fairness to you maybe I'm moving the goalposts because of my ignorance. If so I'm sorry.


With an ordinary pension, where money is continuing to come in, most of the money can (relatively safely) be invested in higher risk-higher return options, because, over time, the stock market averages an upward trend, and dollar cost averaging will take advantage of any dips. In the worst case the money coming in can be used to cover some of the outgo if that makes more economic sense than selling currently held units. And of course some is also kept in low risk units in order to provide funds for immediate needs.

However, when an organization pulls out of the pension fund, that doesn't eliminate the pension liability. People who retired previously are still owed their pensions. People who have time in are still owed some portion of their pensions. CalPERS still has the obligation to pay those amounts as it comes due. And since there is no money coming in to average the market, all of that money has to be held in low risk - low return funds in order to be certain it is available as needed. Thus, the actual return will be lower, and more money is needed up front to make certain there is enough at the back end.

This isn't a scam. It isn't an underfunded pension. It's the required investing strategy shifting as the obligations do. (And yes, to absolutely guarantee pensions would be paid out, they would have to be funded at the minimum guaranteed return level, but it is possible to do better than that in the long term).

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Mon Sep 19, 2016 10:24 pm UTC

Okay, but I looked at a report titled Annual Actuarial Valuation for the Terminated Agency Pool for the TAP fund, which is invested in Treasury bonds or bills or some such. Looks like a second fund to me.

CorruptUser wrote:There's a reason the fund is valued at the 7.5% instead of the 2.38%, though as I said I'd use 7% but that's me. Let's say instead of payments throughout, you just have a single lump sum payment to the pension fund. And when you retire, instead of a pension, you are given a fixed annuity from a third party. You are 35, you retire at 65. You give the pension company $100,000 now. They invest it in a well diversified portfolio. The stocks earn 7%. The pension company now has ~$760,000 from your deposit of $100,000. If it had been in 30 year bonds, that $100,000 would be $200,000. Should they give you an annuity worth $760,000, or should they give you an annuity worth $200,000? Or would you rather have given the pension company nearly $380,000 for the $760,000 annuity?
I would personally take the bigger money and run. Don't be foolish. But Calpers haven't reached their 7.5 percent in 20 years. However I am sorry to have snared you into this conversation. And everybody else as well.

Calpers Earns 0.6% as Long-Term Returns Trail Fund’s Target
The system must average at least 7.5 percent a year to match its assumed rate of return or turn to taxpayers to make up the difference. Calpers’s annualized returns were 6.9 percent for the last three years, 5.1 percent for the last 10 years and 7 percent over 20 years, according to a presentation to the board. It is among U.S. pensions under pressure to boost investment returns as funding shortfalls increase amid an aging population and low interest rates.


DanD wrote:This isn't a scam. It isn't an underfunded pension. It's the required investing strategy shifting as the obligations do. (And yes, to absolutely guarantee pensions would be paid out, they would have to be funded at the minimum guaranteed return level, but it is possible to do better than that in the long term).
The LA Times disagrees with you. However this isn't my struggle. Bless them in sunny California.
LA Times wrote:If you think the stock market's steep slide this month hammered your personal portfolio or 401(k), imagine what it's done to California's state pension system, CalPERS. Years of overoptimistic stock purchases and inadequate contributions have left it terribly vulnerable, and just a few years of down markets could leave it insolvent.

Financial statements released last month (for the fiscal year ending June 30, 2015) showed that the pension system was only 77% funded — and that percentage has certainly dropped alongside all the stock indices in recent weeks. If taxpayers are going to avoid having to bail out CalPERS, the system needs an overhaul.
Even before the recent market downturn, CalPERS was struggling.

Two state laws are to blame for the system's financial struggles. Proposition 21, passed in 1984, allowed CalPERS fund managers to move its investments from safe and predictable bonds to risky and volatile stocks and hedge funds to try to generate a higher return. SB 400, passed in 1999, increased pension payouts by 50% for California Highway Patrol employees, a move quickly replicated at other state agencies and local governments.

In the midst of a bull market such as the late '90s tech bubble, perhaps that seemed fine. But it was irresponsible. At the top of a market cycle, a healthy pension system should be overfunded — and then should hold onto the excess to ride out bear markets. CalPERS didn't do that, and so market corrections suddenly become an existential threat.

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby KnightExemplar » Mon Sep 19, 2016 10:35 pm UTC



As did every fund that invested into the S&P500 in 2015.

The 15% gains from 2008 through 2014 probably make up for it however. You win some years, you lose some years in investing. 2015 was a bad year for most of us. How did your 401k do last year?

--------

In any case, that pension systems do poorly today is more or less my expectation. Pensions have overpromised and underdelivered in general. As stated before: the market is a fickle beast, it probably is best if we did what we could to take on the risk ourselves.

Zamfir's point is solid though: pooling our pool of money together to serve the ones who live longer makes some degree of sense. If I die when I'm 45, "my" share of the pool can be distributed to the remaining (alive) members of the pension. Pooling together risk like that does seem to have some degree of benefit. But only if pension funds honestly achieve the gains they promise.

In any case, 7% returns over 20 years (aka: 386% growth) is pretty good. That's... not really that bad for a fund of this size.

Two state laws are to blame for the system's financial struggles. Proposition 21, passed in 1984, allowed CalPERS fund managers to move its investments from safe and predictable bonds to risky and volatile stocks and hedge funds to try to generate a higher return.


On the average, stocks perform better than bonds. This kind of move only makes sense.

At the top of a market cycle, a healthy pension system should be overfunded


This article is awful. No one knows when you're at the top of a market cycle. If people knew this mystic knowledge, everyone would sell and suddenly you're not at the top of a market cycle anymore.

The issue with large funds like CalPERS, is once you reach the ~billions of dollars of securities... you've grown too big and other players in the market can game against you. For example, if CalPERS announces that they're buying S&P500 funds next year, I'll buy SPY this year and then sell it to them next year, capturing easy profits.

The stock market only moves a few billion dollars each day. If you're managing hundreds-of-billions of dollars like CalPERS, you're gonna spend many days to move money around. During which, players will game you and try to extract profits from you. You HAVE to rely on hedge funds and other obscure tools once you reach that size, otherwise you get pwned.

CalPERS has over $150 Billion in assets. That's... huge. The entirety of SPY's volume today was only ~$18 billion for example. It'd take over a week for CalPERS to buy SPY if they monopolized the market. Or say AAPL, which only had $5 Billion in volume today. It'd take about a month for CalPERS to buy $150 Billion of AAPL.

Yeah... I think the managers at CalPERS can start ignoring bad articles like that and stick with the hedge-fund specialists who know how to enter / exit the market without getting destroyed by the other players.
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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby sardia » Tue Sep 20, 2016 12:13 am UTC

You mean stick with their actuaries. They fired their hedge fund specialists. http://www.nytimes.com/2015/06/09/busin ... -fees.html
They decided that passive investments, not hedge funds, is the way to go.

We're pretty deep into weeds, and I feel no closer to the truth. If I was a California Pensioner, should I be more worried than usual?

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Re: Acutaries Cooked The Books on Pensions, (Maybe?)

Postby morriswalters » Tue Sep 20, 2016 12:17 am UTC

No.


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