1. FUNDING OF STATE AND LOCAL PENSIONS: Center for State & Local Government Excellence has released a new Issue Brief entitled “The Funding of State and Local Pensions: 2011–2015.” The stock market hovers around pre-crisis peaks, tax revenues have rebounded and plan sponsors have raised employee contributions for all workers or reduced benefits for new workers (or both), yet the funded status of state and local pension plans has slipped. This result reflects slow growth in the value of actuarial assets as actuaries in the public sector tend to smooth gains and losses over several years, which was only partly mitigated by an unexpected reduction in liability growth. Because of smoothing, funding results looked much better in 2009 and 2010 than developments warranted, but worse than developments in 2011. In order to highlight the impact of asset smoothing in the short run and the stock market in the slightly longer run, the brief provides an update on the funded status of state and local plans in 2011, and also reports projections for the period 2012–2015. The discussion is organized as follows. The first section reports that the ratio of assets to liabilities for the sample of 126 plans slipped to 75 percent in 2011. These funded ratios, however, are based on liabilities discounted by the expected long-term yield on plan assets, roughly 8 percent. So, the second section revalues liabilities using the riskless rate, as advocated by most economists for reporting purposes, and shows an aggregate funded ratio in 2011 of 50 percent. The third section shifts from a snapshot of funded status to sponsors’ payment of current costs, which shows that Annual Required Contribution rose to 15.7 percent of payrolls in 2011, and the percent of ARC paid dipped to 79 percent. The fourth section projects funding for 2012–2015, and shows that, under the most likely of three stock market scenarios, the aggregate funded ratio will remain steady next year, but then gradually rise to 82 percent by 2015. The fifth section describes recent actions that states have taken to improve funding. The final section concludes that, in the short term, the reported funded status of public plans depends critically on the way the actuaries smooth assets. Because of the smoothing, funding will show little improvement next year, but thereafter, if financial markets do not collapse again, the public pension landscape will look better. By the way, the ratio of assets to liabilities for the Florida Retirement System rose from 86.6 percent in 2010 to 86.9 percent in 2011.
2. GLOBAL VIEW OF CORPORATE PENSION FUNDS: Pensions & Investments examined pension assets of the Dow Jones Global Titans 50 index of multinational corporations. Here are the best and worst funded:
Most funded ratio (millions)
J.P. Morgan Chase 113.4% $13,461
Financial Group 104.5% $23,940
Bank of America 101.3% $17,092
Vodafone Group 100.6% $2,206
HSBC Holdings 99.4% $34,836
BNP Paribas 44.5% $4,923
Eni 51.4% $739
Intel 52.7% $1,370
Sanofi-Aventis 57.2% $7,770
Exxon Mobil 60.2% $27,773
As can be seen, from a funding-ratio perspective, financial companies serve as bookends, with J.P. Morgan Chase at the top and BNP Paribas at the bottom. Very interesting.
3. U.S. COMMONWEALTH ATTEMPTS CHAPTER 11 GAMBIT: Lawyers representing participants in the Northern Mariana Islands Retirement Fund have filed a motion to dismiss the pension plan’s Chapter 11 bankruptcy filing, according to Pensions & Investments. The motion, filed in behalf of two anonymous retirement plan participants, argues that the plan cannot file for Chapter 11 restructuring because it is not a person under the bankruptcy code and because it is a governmental unit. (See C&C Newsletter for June 10, 2010, Item 1-- a basic primer on Chapter 9 of the Bankruptcy Code applicable to governmental units.) As a general matter, governmental units cannot file bankruptcy. Filing for bankruptcy, the fund was permitting the local government to avoid its obligation to retirees. The plan has over 5,000 beneficiaries, including retirees and employees. Holding almost $270 Million in assets and facing over $900 Million in liabilities, the fund is expected to run out of money in 2014. The fund is also in federal court litigation over a mandated $231 Million payment that has been owed to the pension plan since 2009. Over time, that amount has ballooned to $325 Million. Seems pretty simple to us: employer fails to pay mandatory contribution, pension fund runs short of assets.
4. WHO IS REALLY WATCHING THE STORE: For years, Rita Crundwell kept an eye over virtually every dollar that passed through the small town of Dixon, Illinois’s coffers as city comptroller, while also running one of the most successful horse farms in America. Now, according to the Morris (Illinois) Daily Herald, the 58 year old Crundwell has been arrested on charges that she misappropriated more than $30 Million in city funds in just the last six years! Much of that money went to pay to operate the champion horse breeder’s ranch. The size of the losses represents a staggering hit for the small northwest Illinois town with a budget of only about $8 Million-to $9 Million a year. In spite of a city salary of just $80,000 a year, Crundwell lived extravagantly, spending huge sums on her horse farms that raised champion quarter horses as well as $340,000 on jewelry since 2006 and $2.1 Million to buy a luxury motor home fit for a rock star. The mayor, who must be a real genius, said “I guess people assumed she was making a ton of money in the horse business.” Let’s analyze it this way, folks. The embezzler stole almost 60 percent of the town’s budget, annually, for six years, and nobody questioned the shortfalls. Hard to believe.
5. CORRECTION: Several readers found an error in the link we gave in Item 2 of the Special Supplement for May 4, 2012. The correct link is http://www.actuary.org/briefs.asp#soc. In addition, the link that appears in Item 8 of the May 3, 2012 Newsletter does not work. Here is the correct link: See C&C Newsletter for April 26, 2012, Item 8. We apologize for the inconvenience.
6. THIRTY-THIRD ANNUAL POLICE OFFICERS’ AND FIREFIGHTERS’ PENSION TRUSTEES’ SCHOOL: The 33rd Annual Police Officers’ and Firefighters’ Pension Trustees’ School at FSU’s Center for Academic & Professional Program Services in Tallahassee will take place on May 14-16, 2012. You may access information and updates about the Trustees’ School, including area maps, a copy of the program when completed and links to register with FSU, as well as the Doubletree Hotel, on the Retirement Division’s website at www.myflorida.com/frs/mpf. All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this unique, insightful and informative program.
7. FPPTA 28TH ANNUAL CONFERENCE: The Florida Public Pension Trustees Association’s 28th Annual Conference will take place on June 24-27, 2012 at the Hilton Walt Disney in Lake Buena Vista. The hotel is located across the street from Downtown Disney and has complimentary transportation to Disney parks. There are a variety of restaurants within the hotel including a Disney character breakfast Sundays at Covington Mill. A link on FPPTA’s web site,www.fppta.org, will take you to the Hilton Walt Disney site to make your room reservations. Sunday, June 24th the Associates Advisory Board is sponsoring the 24th Annual Associates Charitable Golf Classic held on Disney’s beautiful Magnolia Golf Course. You may access information and updates about the Conference at FPPTA’s website. All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this Conference.
8. GOLF WISDOMS: Always limp with the same leg for the whole round.
9. PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.): “Mark my words. No, Mark, I really need my words.” CStephen Colbert
10. QUOTE OF THE WEEK: “Regret for wasted time is more wasted time.” Mason Cooley.
11. ON THIS DAY IN HISTORY: In 1973, 27th NBA Championship: NY Knicks beat LA Lakers, 4 games to 1. Too bad this year.
12. KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources.
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