Teacher Tenure/Unions/Government/Pensions

[EagleDad]

“While changing accounting standards as you have proposed would be destructive, counterproductive, and unjustified during any economic circumstances, it would be particularly damaging now,” wrote Reps. Gerald Connolly, D-Va.. and Edolphus Towns, D-N.Y., in a two-page letter, dated Aug. 11, to GASB chairman Robert Attmore.

The congressmen said the proposed changes were unnecessary, “given the reliability of most public pension plans and their sponsors.”

Specifically, they said, public pensions over the past 25 years have generated average annual returns of 9.25%, with very low default rates among cities and counties.

“Local governments are managing their money just fine without having arbitrary and destructive new standards imposed on them by GASB,” they wrote.

I believe the congressmen in question posed for this photo-op afterwards:

[macrockett]

First new rules for pensions, next up is OPEBs

www.reuters.com/article/2012/06/25/us-usa-pensions-standards-idUSBRE85O01Z20120625

New rules may make public pensions appear weaker
Mon, Jun 25 2012

By Lisa Lambert and Nanette Byrnes

WASHINGTON (Reuters) - New accounting rules approved on Monday are likely to show public pension funds are in a weaker financial position than previously thought and intensify disputes over how public retirement systems are funded.

The Governmental Accounting Standards Board, which sets the accounting standards for the public sector, finalized a single system of accounting to replace the menu of financial reporting options public pension funds currently use.

State and local governments will have to post their net pension liability - the difference between the projected benefit payments and the assets set aside to cover those payments - up front on financial statements, under the changes.

"The pension liability will appear on the face of the financial statements for the first time. That's going to create the appearance of a weaker financial position," said Robert H. Attmore, GASB chairman, who said the board intended to "peel back the veil so things are more transparent and there's more information for policy makers."

Governments participating in multi-employer plans - essentially smaller cities that are part of the state systems - will have to represent their share of liabilities, which could also make them appear financially weaker. Currently, they only have to state how much they have contributed.

Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management, said GASB was headed in the right direction in terms of comparability and transparency, adding that some of the changes will sharply increase deficits for some governments.

"It shouldn't immediately cause anyone to file for bankruptcy," he said, adding that "it may immediately raise the level of attention to seriously do something here."

The biggest GASB change affects how the pension funds project rates of return on their investments, which provide 60 percent of their revenue. Underfunded pensions would have to lower their estimates for returns. UH OH...THERE GOES THE FAIRY TALE... AS MENTIONED IN THE PRIOR POST

GASB also eliminated a process known as "smoothing," where the pension systems spread the liabilities over time, making the funds more reactive to volatility in financial markets. Funds can still spread out expenses, but over a shorter time frame. THE SEC FORCED ILLINOIS TO RESTATE A YEAR OR SO AGO ON THIS ONE, TO THE TUNE OF $10 BILLION IN ADDITIONAL UNDERFUNDED PENSIONS...

Some of the GASB changes go into effect on June 2013, with the others implemented in June 2014.

More changes are coming. Starting next month, GASB will begin work on accounting for other retiree benefits, mainly healthcare, which tend to be in worse shape than pensions. THAT IS AROUND $29 MILLION FOR D204 PER LAST YEARS FINANCIAL STATEMENTS. SEE THE NOTES ON OPEBS.

Some critics say the reforms could distort perceptions of governments' and retirement systems' health. They worry politicians will seize on the new, larger liabilities, to push through policy changes or starve employee retirement systems.

"We're concerned about confusion of the numbers," said Keith Brainard, research director of the National Association of State Retirement Administrators. "If a plan has a liability of $4 billion, does that mean they need $4 billion today? No. It's an accounting number." THEY ARE GOING TO NEED IT AT SOME POINT, SO WHY NOT BE HONEST ABOUT IT?

Governments typically provide about 20 percent of pension fund revenue, but under the new standards, they will not have to disclose their annually required contributions (ARC). Ciccarone, however, raised concerns that governments would no longer post this information.

The Government Accountability Office, the nonpartisan federal auditor, reported in March that "most state and local government plans currently have assets sufficient to cover their benefit commitment for a decade or more."

Still, skepticism has risen about both the long and short-term prospects of public pensions. A week ago the Pew Center on the States estimated states are short $757 billion to pay retiree pension benefits, and the total could grow. THIS IS ALSO A FAIRY TALE, THE ACTUAL WILL BE MUCH HIGHER.

LOWER RATES OF RETURN MEAN BIGGER TAXPAYER BILL

Although it sounds like a technical accounting move, the new standard on rates of return is key to the pension wars.

Pension funds that are considered adequately funded could continue forecasting investment returns in-line with their historic averages, usually around 8 percent, under the new GASB rules. The board would only define those pension systems as having sufficient assets on hand to pay the pension of current employees and retirees, but did not set a funding ratio.

Funds lacking sufficient cash to cover benefits must lower their projected investment rate to about 3 percent to 4 percent. Specifically, the investment rate would have to match "a yield or index rate on tax-exempt 20-year, AA-or-higher rated municipal bonds," an information sheet on the changes said. On Monday, the yield for AA-rated municipal bonds due in 20 years was 3.12 percent, according to Municipal Market Data.
THIS IS THE BOMB THAT NO ONE WANTS TO TALK ABOUT

When investments fail to meet the forecasts, governments - essentially taxpayers - and employees must pitch in money to fill the void. At the depth of the recession in 2008, the return on pension investments fell by 25 percent, Pew found.

The new rules offer a compromise. U.S. Congress would like systems to use a rate they call "riskless," about 4 percent. Pensions counter they should use historical averages. IF YOU GO BACK AND LOOK AT THE JOSHUA RAUH (SP) POSTS YOU WILL SEE HE HAS BEEN SCREAMING FOR THIS FOR SEVERAL YEARS.

Pew found that Wisconsin is the best-funded retirement system in the country, and Illinois the worst. WHAT A SURPRISE.

"States like New York, which are making their contributions to their pension plans and are well-funded, their liability should not be affected by the new discount rates," said David Draine, senior researcher at Pew, about the GASB changes. "States like Illinois that are having trouble making their contributions, you would expect to be more affected."

According to a study by the Center for Retirement Research at Boston College, the funding ratio which is at 76 percent in 2010 could decline to 57 percent with the new accounting rules.

In some cases the reductions expected in the funding ratios are massive. Illinois teachers, a notoriously underfunded pension fund, currently has a funding ratio of 48.4 percent. Under the GASB's proposed changes it may fall to as low as 18.8 percent.

Pew also found states are short $627 billion for other retiree benefits, and 17 states have set aside no funds for them. According to Pew, states currently have only 5 percent of what they need for these "Other Post-Employment Benefits."

Until 2006, GASB did not have any accounting standards for those benefits.

(Reporting by Lisa Lambert in Washington and Nanette Byrnes in Chapel Hill; Editing by Anthony Boadle and M.D. Golan)

[macrockett]

Another DUH moment.

news.investors.com/article/615924/201206221857/public-pension-accounting-masks-underfunding.htm

Investors.com - Powered by Investors Business Daily


Public Pensions' Bullish Forecasts Mask Underfunding

By TOM GRAY, FOR INVESTOR'S BUSINESS DAILY
Posted 06/22/2012 06:57 PM ET

Between stock market crashes and record-low interest rates, investors have had plenty of reasons to lower their expectations in recent years. But public pension funds still see a world of reliable 8% annual returns.

Despite median annual returns less than 6% in the past 10 years — meaning that half the funds did even worse — most public plans still peg future returns in the 7.5% to 8.5% range.

By assuming such high returns, public pensions can carry much-lower current balances and keep contributions low. That raises the risk that the plans will be woefully underfunded. If they miss their target by just a little, future taxpayers must pay for the huge shortfall.

Joe Nation, a former California state assemblyman who is now a Stanford University professor of the practice of public policy, says pension funds play a dangerous game when they bank on high future returns and skimp on up-front cash. "You can get into a really deep financial hole really quickly by doing that."

But adjusting assumptions about investment returns is painful, too. And the pain is felt in the short term. The political side of this math is not hard to see.

In a December 2011 study, Nation calculated what would happen if the California Public Employee Retirement System, with a 7.75% discount rate at the time, switched to a more conservative (but not risk-free) 6.2%. Costs to already cash-strapped state and local governments would surge by $7.8 billion a year. (CalPERS later did cut its discount rate, but only to 7.5%.)

Tougher Rules For Companies

Corporate pension plans' accounting rules force them to discount future obligations at a lower rate tied to corporate bonds — currently around 5%. This pegs the current value of those liabilities at a higher level, forcing businesses to pony up more cash today. So the risk of underfunding is less.

Defenders of the public-sector accounting rules argue that governments are different.

They are "essentially perpetual entities," says Keith Brainard, the research director of the National Association of State Retirement Administrators. "A private sector entity is prone to a number of outcomes that are unlikely to visit a public sector entity — namely takeover, bankruptcy, being liquidated."

Not quite, says Nation. "I would say, 'Ask Vallejo. Ask Stockton. Ask Providence,'" he said. "We are in a different period when governments actually do declare bankruptcy."
GOTTA LOVE THAT LOBBYIST RATIONALIZATION ABOVE, THAT PUBLIC SECTOR ENTITIES DON'T GO BANKRUPT. FORTUNATELY MR. NATION SETS THE RECORD STRAIGHT. ALSO SEE STORY ON STOCKTON BELOW.

Vallejo, Calif., has been through the bankruptcy process; Stockton, Calif., and Providence, R.I., are on the verge.

Voters Push Reforms

California voters seem to share his concern. In San Diego and San Jose this month, they approved ambitious reforms to keep those cities out of the "financial hole" of pension promises that can't be kept. These cities were already facing serious underfunding. Those gaps would be much worse if the pension funds cut their expected returns to more realistic rates.

That short-term pain is a big reason why expected rates of return won't fall much anytime soon. But critics say the status quo makes future pain more likely by leaving contributions too low and encouraging funds to take on more risk.

Risk-free assets, such as Treasury bonds, lower a plan's expected return and thus make it look more underfunded, when in fact it is safer. Shifting to investments that are much less of a sure thing, like private equity and hedge funds, raises the expected return and narrows the official funding gap. But the added risk — the chance that taxpayers will be left with a huge tab because of failed investments — is not accounted for.

Some economists, such as Robert Novy-Marx at the University of Rochester, want pension fund liabilities valued at a risk-free discount rate. That would produce a huge underfunding number — probably around $4 trillion, he says.

Public plans themselves report underfunding of $757 billion, even by their own bullish assumptions, according to a new report by the Pew Center on the States. (Neither figure includes the potential costs of retiree health care.)

What would happen if pension liabilities were suddenly recalibrated in this way? Fully funding them might be beyond the reach of any government. But reformers such as Nation say the shock of seeing true costs could goad governments into renegotiating contracts and putting plans on a sounder footing.

As Novy-Marx puts it, the first task is to come to terms with reality: "For me it's about transparency, and it's about the distortions in the system that are due to a lack of transparency."

© 2012 Investor's Business Daily, Inc. All rights reserved. Investor's Business Daily, IBD and CAN SLIM and their corresponding logos are registered trademarks of Investor's Business Daily, Inc. Copyright and Trademark Notice | Privacy Statement | Terms and Conditions of Use

[macrockett]

abcnews.go.com/Business/stockton-bankruptcy-looms/story?id=16650542#.T-n1Od2Bpzo

[macrockett]

Call this Europe:

You no doubt have heard about the Stockton, Ca bankruptcy filing. What you may not know, however, is the largest creditors are Calpers and Wells Fargo Bank.

www.bloomberg.com/news/print/2012-07-02/stockton-battle-with-bondholders-begins-this-week.html

Stockton Battle With Bondholders Begins This Week
By Steven Church - Jul 2, 2012

Stockton, California, which last week became the biggest U.S. city to seek court protection, will begin a historic effort this week to be the first American city to use bankruptcy to successfully impose losses on bondholders.

Lawyers for Stockton are to appear in U.S. bankruptcy court in Sacramento July 6 for the initial hearing in the case. City council members have set aside more than $3 million for the first year of a bankruptcy court fight with bondholders and labor unions over how to divide a smaller budget.

No U.S. municipality has used bankruptcy to force bondholders to take less than the full principal due since at least 1981, and possibly as far back as the 1930s, according to lawyers and court records.

“We’re trying to spread the pain, unfortunately, to others besides employees,” Stockton City Manager Bob Deis told council members at a June 26 hearing. Before the June 28 bankruptcy filing, Stockton officials said they would try to impose cuts on all creditors.

The municipal bond market will be watching to see if that goal is met, said Jim Spiotto, a bankruptcy attorney with Chapman and Cutler LLP who helped write a book about municipalities in financial distress.

“That’s what everybody is going to be watching,” Spiotto said in a telephone interview. “What’s the stigma for it? What’s the price? Do you trade a short term gain for a long term pain?”
Municipal Bankruptcies

Of the 43 municipal bankruptcies filed since 1981, 33 were either dismissed by a judge, or failed to win a court ruling discharging their debt. Court records for the remaining 10 did not list the disposition. Spiotto said none of those cases ended with a cut to the principal owed lenders.

“Whenever there’s a bankruptcy or default, there’s a psychological twinge that goes through the issuer community and the market,” Tom Dresslar, a spokesman for California Treasurer Bill Lockyer, said in a telephone interview. “If other issuers, including the state, are stained as a result of Stockton’s bankruptcy then potentially when we go to market we suffer the consequences.”

During negotiations in the months leading up to the bankruptcy, bondholders “were grossly unhappy with the city’s proposal,” Joe Rose, an attorney for the city’s biggest labor union, said in an interview. Rose was part of the negotiations, which were required under a state law governing when cities can file bankruptcy.
First Municipality

The California city of Vallejo, about 65 miles west of Stockton, became the first municipality to use bankruptcy to cut the interest rate paid to its lender, Union Bank NA, Spiotto said.

Stockton listed assets of more than $1 billion and debt of $500 million to $1 billion in court filings. The Chapter 9 petition allows Stockton, a city of 292,000, to suspend payments to creditors while it seeks court approval for a plan that balances revenue with debt.

The two biggest creditors named in the filing reflect the groups most likely to face cuts imposed as part of the bankruptcy: bondholders and city employees.

Stockton said its biggest unsecured creditor is the California Public Employees’ Retirement System, or Calpers, the largest U.S. pension fund, owed $147.5 million, followed by Wells Fargo (WFC) Bank NA, as trustee for $124.3 million in pension obligation bonds, and Wells Fargo as trustee for three other sets of bondholders owed $107 million, according to court papers.
‘Active Role’

Wells Fargo “expects to take an active role in the bankruptcy proceedings,” Elise Wilkinson, a spokeswoman for the San Francisco-based bank, the nation’s biggest home lender, said in an e-mail the day Stockton filed bankruptcy.

The bank didn’t lend the city any money, she said.

“All our efforts in the bankruptcy proceedings will be directed toward achieving a recovery for the holders of Stockton bonds,” she said.

Stockton is the biggest city to file bankruptcy, by population. The biggest of all municipal bankruptcies, by debt, was filed by Jefferson County, Alabama, last year.

Jefferson County owes creditors about $4.2 billion, according to court records, and like Stockton is trying to force bondholders to take less.
Jefferson County

Unlike Stockton, Jefferson County’s bonds are tainted by claims of political corruption. In 2009, JPMorgan Chase & Co. (JPM) agreed to a $722 million settlement with the Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business.

Cities have avoided trying to force investors to take a loss in court, or out, because the bond market would punish any future borrowings with higher interest rates, or possibly by locking them out entirely, said Richard Ciccarone, chief research officer at McDonnell Investment Management LLC in Oak Brook, Illinois.

Since the 2008 financial and housing crisis, the number of municipalities filing bankruptcy has increased. Eleven of the 43 to file since 1981 came after the crisis started.

Spiotto and Ciccarone said they cannot identify any large municipalities that haven’t fully repaid principal since the Great Depression in the 1930s. In that era, about 4,000 municipalities defaulted, with about 40 of those not fully repaying the debt.
Housing Market

The collapse of the housing market left Stockton to contend with mounting retiree health-care costs and an eroding tax base in the wake of the recession, amid accounting errors that overstated municipal revenues.

Stockton began negotiations with creditors March 27. They were extended to June 25. Calpers, Wells Fargo and bond insurer Assured Guaranty Ltd. (AGO) were among at least 18 creditors involved in the failed talks.

Assured Guaranty has insured $161.4 million worth of Stockton’s bonds, the company said in a statement. Insured bondholders “remain fully protected,” the company said.

“Assured Guaranty intends to vigorously enforce its rights as a creditor in any Chapter 9 proceeding, including the right to contest eligibility and confirmation of any plan of adjustment proposed by the city,” the company said in a statement e-mailed by Ashweeta Durani, a company spokesman.

The case is In re Stockton, 12-32118, U.S. Bankruptcy Court for the Eastern District of California (Sacramento).
Following is a list of municipal bankruptcy filings since 1988
*T Date Municipality

March 1988 City of Copperhill, Tennessee April 1991 City of Lipscomb, Alabama June 1991 City of Bridgeport, Connecticut October 1991 City of North Bonneville, Washington December 1992 Town of North Courtland, Alabama June 1994 City of Kinloch, Missouri December 1994 County of Orange, California June 1995 Town of Ozan, Arkansas September 1996 Greene County, Alabama April 1997 Town of Winstonville, Mississippi September 1998 City of Macks Creek, Missouri July 1999 City of Camden, New Jersey October 1999 City Of Prichard, Alabama April 2000 City of Westminster, Texas September 2000 Town of Tyrone, Oklahoma November 2000 City of Macks Creek, Missouri June 2001 City of Kendleton, Texas November 2001 Village of Hillsdale, Missouri December 2001 City Of Desert Hot Springs, California June 2002 City of Rio Bravo, Texas November 2002 City of Reeds Spring, Missouri October 2003 Village of Brooklyn, Illinois October 2003 City of Iron Mountain Lake, Missouri April 2004 City of Westminster, Texas May 2004 Village of Washington Park, Illinois December 2004 Town of Millport, Alabama January 2005 Village of Alorton, Illinois April 2005 Town of Muldrow, Oklahoma August 2005 City of Camp Wood, Texas January 2006 Town of Marshall Creek, Texas December 2006 Town of Moffett, Oklahoma February 2007 Town of Marion, Mississippi April 2008 City of Gould, Arkansas May 2008 City of Vallejo, California April 2009 Westfall Township, Pennsylvania July 2009 Village of Washington Park, Illinois October 2009 Town of Moffett, Oklahoma October 2009 City of Prichard, Alabama March 2011 Boise County, Idaho August 2011 City of Central Falls, Rhode Island October 2011 City of Harrisburg, Pennsylvania November 2011 County of Jefferson, Alabama June 2012 City of Stockton, California

Source: Federal court records.

[macrockett]

Let the brow beating begin. This is a fundamental step in providing transparency for taxpayers as well as providing everyone with a real understanding of the true cost of government

www.reuters.com/article/2012/07/10/us-usa-accounting-government-idUSBRE86918P20120710


Little-known U.S. board stokes hot pension debate
Tue, Jul 10 2012

By Nanette Byrnes

(Reuters) - The feedback was swift and often scathing when a little-known public board signaled its intent to toughen the accounting rules governing state and local pension funds of millions of U.S. public employees, intensifying worries over a shortfall of billions of dollars.

The plan by the Governmental Accounting Standards Board (GASB) - which was approved on June 25 - drew praise from the American Institute of Certified Public Accountants and from investors looking for transparency in the $3.7 trillion municipal bond markets.

But not so from the likes of Kevin Lillie, treasurer of the Geneva, Ohio area schools district, one of more than 700 letter writers, who asked: "How do you people come up with these things?" He was not alone in his incredulity.

For some states and municipalities the new rules, taking effect in 2013 and 2014, mean acknowledging that pensions for police, firefighters, teachers and other municipal workers are woefully underfunded liabilities.

The public employees worry that could prompt calls for cutbacks at a time of immense financial pressures while advocates for conservative fiscal management say that's precisely what's needed.

The accounting overhaul was a rare foray into the public eye for GASB, a 28-year-old body that shares offices in Norwalk, Connecticut with the far more powerful Financial Accounting Standards Board (FASB), its older brother and the standard setter for private and publicly traded companies and not-for-profit organizations.

In a letter to GASB, Congressmen Gerald Connolly of Virginia and Edolphus Towns of New York called the proposals arbitrary and destructive. Boston College pension expert Alicia H. Munnell wrote that GASB's planned method for valuing pension liabilities "makes no sense at all."

Withdraw the proposal entirely, urged the Lubbock Texas Fire Pension Fund.

GASB listened. Board members read the letters. Staff tallied them in a spreadsheet. The board flew around the country holding public meetings and collecting people's thoughts.

Then the board's seven members - many of whom work day jobs in local and state governments themselves - went ahead and approved the rules, without changing many of the most controversial elements. "This is not a democratic process," said a person close to the board. "The board is not Congress. It looks at the fundamental underpinnings of the issues."

RADICAL CHANGES

In one unanimous vote GASB set in motion changes, termed radical even by supporters, that will force many of the worst-off state and local governments to acknowledge much bigger pension shortfalls as liabilities on their balance sheets, while no longer requiring information about how well they are funding those promises. The rules will add volatility to the funds by eliminating the "smoothing" of their liabilities over time, and will impose new accounting costs on already strapped governments.

The new GASB rules don't alter what's owed, but will make some dramatic changes to the accounting value of liabilities.

Underfunded pension plans will no longer be able to use the projected rate of return on their investments, currently about 8 percent, to value all their liabilities. Instead, any unfunded promises will have to be valued at a far lower rate, close to what it would cost them to borrow the money to cover that debt.

This hybrid plan - which uses one rate for funded liabilities and another for the unfunded ones - will make the most poorly funded plans' liabilities look far larger because the lower the discount rate used to evaluate those liabilities, the higher the present value of the amount owed by local governments.

The new pension math won't exactly mirror how corporations handle these calculations, but will bring the governments' numbers a step closer to the more conservative figures of the private sector.

Pension supporters fret that these on-balance sheet liabilities will be misunderstood as current obligations and add to the tension between funding these promises to police, firefighters, teachers and others, and spending on public services.

Fiscal conservatives say it's high time the real cost of what they see as overly generous public sector pensions is recognized, and warn that these pensions are unsustainable.

CHILDREN OF A LESSER GOD

Begun six years ago as a routine review of existing accounting rules, the pension accounting revamp came to a head at a time when sharp investment losses of the late 2000s, declining contributions from cash-strapped governments, and a rising number of retirees have made questions about their sustainability front-page news.

"That sure raised the level of awareness," GASB Chairman Robert H. Attmore said in an interview, though he maintained that in the end the public debate over pensions did not shape the board's rules.

Founded in 1984, at a time when government bookkeeping came under criticism for not being more like that of business, GASB operated largely under the political radar. While tasked with setting standards, GASB had little in common with FASB, founded 10 years earlier.

FASB has an annual budget of $39 million, a fulltime board of seven, and a chairwoman, Leslie Seidman, who was paid more than $760,000 in 2010, the most recent year for which filings are available.

By contrast, six of GASB's seven board members work part-time, the board has a budget of $8 million this year, and Chairman Attmore, who draws a pension from New York state where he spent 17 years as auditor, made $424,000 last year. The board members are all knowledgeable of government finance and appointed by a nonprofit professional board rather than a political one.

RUBE GOLDBERG MACHINE

Up until this year, when a congressionally mandated fee on brokers took effect, GASB had no permanent funding, relying entirely on voluntary contributions and subscriptions to fund its expenses.

GASB explains the budget gap as stemming from the board's part-time status as well as its lighter workload. GASB, which has a total of 68 accounting standards, approved two new ones last year, while FASB penned 12 to bring its total to 226.

From bankrupt Stockton in California to financially strapped states such as Illinois and Rhode Island, the pressures stemming from pension promises are a constant worry, shared by officials in small and large local governments.

Accounting professionals are split on whether the new rules are a step in the right direction.

Paul Angelo, a senior vice president for the Segal Company, one of the largest actuarial firms in North America, calls the new rule a "perfectly nuanced solution to a difficult question."

Though liabilities will be marked higher for many, economists and actuaries, who yearned for a system closer to the corporate model, say they are not high enough. Given that promises made to public staff are often ironclad in state laws and that future payments must be guaranteed, a cautionary approach would suggest a discount of all those liabilities at a "riskless" rate similar to the borrowing costs of the U.S. Treasury, they argue.

By instead endorsing a two-pronged approach, the board has built a machine that performs a simple task in a complex fashion, counters New York actuary Jeremy Gold, who would favor the use of one low rate: "GASB has built a Rube Goldberg machine filled with complexity." Governments may like GASB's hybrid model better he said, but future taxpayers will bear the burden.

Devin Nunes, a California Republican member of the U.S. House of Representatives, agrees. "Did GASB do enough? No, I do not think the reforms are adequate to protect taxpayers or retirees," he wrote in an email to Reuters.

Nunes has sponsored legislation in the House, which he hopes to reinvigorate after November's election that would sidestep GASB's rules, requiring governments to use a more conservative calculation of liabilities if they wish to issue tax-free bonds.

UNCERTAIN IMPACT

Until the new math kicks in, it's hard to know how much difference it will make. Even under the old rules, the Pew Center on the States estimated that states were short $757 billion on their pension promises.

A July 2 report by ratings agency Moody's Investors Service calculated that if it used a 5.5 percent discount rate, a rate more conservative than the method GASB proposed in its final rules, but closer to the way corporations value their pensions, it "would nearly triple fiscal 2010 reported actuarial accrued liability" for the 50 states and rated local governments to $2.2 trillion from $766 billion.

Next GASB will tackle accounting for other post-employment benefits such as retiree healthcare plans - this despite complaints from governments that they're struggling to keep up with the board's quickly changing standards.

Attmore said that he was sympathetic to the pressures on government finance departments, but that GASB had no plans to slow down.

"If we do our job well, it should make things better and give policymakers and others making tough choices about cutting resources better information to make those decisions," he said.

(Reporting by Nanette Byrnes; Editing by Howard Goller, Tiziana Barghini and Leslie Gevirtz)

[macrockett]

If you think of our young people today, those who work in the private sector and have to contribute to social security, you have to wonder why they haven't rebelled. After all, anyone who doesn't think it is a ponsi scheme just isn't looking at the facts.

For example, disability is paid out of those social security funds (I mean that IOU courtesy of the federal government as there is no lock box on those funds).

Did you know that disability claims are going through the roof?

news.investors.com/articleprint/617233/201207061636/disability-climbs-faster-than-jobs-under-obama.aspx

Now what does all this have to do with the story below? Well all of you newly graduated teachers, the ones that can finds jobs and are now currently employed, you are in a very similar situation. Like our children in the private sector who contribute to social security, you are contributing to a similar "misrepresentation." You see, these public sector funds are really in much the same position as social security. For a number of reasons they will not perform as advertised. The shortfall is the "underfunding." And that portion continues to grow. At the bottom of the story there is a link to a pdf that presents yet another report discussing the perils ahead.

One last thing, I discuss repeatedly the unsustainable actuarial assumptions. For example Calpers, the CA fund for state employees, has an annual return assumption of over 7%. How did it do this past fiscal year? 1%... www.pionline.com/article/20120716/DAILYREG/120719908

If you compound the returns for the one hundred largest pensions systems from 2007 to 2012, using similar 7+% assumptions, you should be at over $4 trillion in total asset values today. Actual is closer to $2.8 trillion right now, for an estimated $1.2 trillion underfunding for that group. See census report: www.census.gov/govs/qpr/




latimes.com/business/la-fi-pension-shortfalls-20120718,0,2745757.story

Pension funds seriously underfunded, studies find

Public pension funds and company pensions in the U.S. are far short of the money needed to meet their retirement obligations, studies find.

By Marc Lifsher, Los Angeles Times

7:00 PM PDT, July 17, 2012
Advertisement

SACRAMENTO — Corporate and public pension funds across the country are seriously underfunded, threatening the retirement security of workers and straining the financial health of state and local governments, according to a pair of independent studies.

In 2011, company pensions and related benefits were underfunded by an estimated $578 billion, meaning they only had 70.5% of the money needed to meet retirement obligations, according to a report by S&P Dow Jones Indices.

Funds generally don't need to have all the money needed pay future pensions because returns on investments vary over the years and people retire at different ages and with different levels of benefits, experts said. But a funding level in the 70% zone is considered dangerously low.

The looming shortfall, and the move by corporations to 401(k)-type plans in which the level of investment is controlled by employees, could keep many aging baby boomers from retiring, said Howard Silverblatt, a senior S&P Dow Jones Indices analyst and the report's author.

"The American dream of a golden retirement for baby boomers is quickly dissipating," Silverblatt said. "Plans have been reduced and the burden shifted with future retirees needing to save more for their retirement.

"For many baby boomers it may already be too late to safely build up assets, outside of working longer or living more frugally in retirement."

While the cost of retirement is out of reach for many older workers and growing more expensive for younger ones, it's becoming less of a burden for employers, according to the report issued Tuesday.

Employers are paying less into pension funds despite the fact that company cash levels remain near record highs and cash flows are at an all-time high," Silverblatt said.

Meanwhile in the public sector, a separate pension-related report by the national State Budget Crisis Task Force warned that public pension funds in the U.S. are underfunded by $1 trillion to $3 trillion, depending on who's making the estimate.

California pensions, collectively, currently face a $136-billion unfunded liability, the report said, citing data from the National Assn. of State Retirement Administrators. The group, chaired by former Federal Reserve Bank Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch, looked at a variety of pressures, including pensions, on the governments of six large states — California, Illinois, New Jersey, New York, Texas and Virginia.

"The ability of the states to meet their obligations to public employees, to creditors and most critically to the education and well-being of their citizens is threatened," the report said.

Soaring pension costs have contributed to the decisions by Stockton and San Bernardino to seek bankruptcy protection. Last month, voters in San Jose and San Diego approved local ballot measures that reduce pension benefits for some government employees.

The state Legislature in August is expected to consider a comprehensive pension overhaul proposed at the start of the year by Gov. Jerry Brown.

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Copyright © 2012, Los Angeles Times



www.statebudgettaskforce.info/wpcms/

[macrockett]

It's the beginning of the end for municipal financing of pensions. One of three things is going to happen. First, the municipality will find the money to pay bondholders. If that does not happen either bond will charge much higher interest rates or will not lend at all.

In Stockton CA, the municipality appears to be "having its cake and eating it too," by fully fund the pension liability and stiffing the bondholders for $124 million. Here is partial text:

The recent war of words between the California Public Employees’ Retirement System and a Bermuda- based bond-insurance company called Assured Guaranty Ltd. (AGO) has made it clear that California officials would rather stiff bondholders than trim even the most generous pension benefits promised to public-sector workers.

The debate centers on Stockton, California, the largest city in the nation to declare bankruptcy. In its initial proposal to creditors, the city would fully fund its pension system while walking away from $124 million in debt from pension-obligation bonds it floated in 2007.

Stockton couldn’t meet its financial obligations to pay for enhanced pension benefits five years ago, so it borrowed the money. Rather than cut unsustainable benefit levels while it has the chance to do so now, officials there would rather default on the $103 million it owes Assured (AGO) Guaranty.

Stockton and other Californian cities have slashed public services, thus putting the demands of public employees above the concerns of taxpayers and residents who rely on public services. Now we see that even bondholders don’t stand a chance when their interests collide with those of public-sector unions.

It’s easier to take on an offshore firm than confront CalPers, which had threatened to wage a protracted court battle against another Californian city, Vallejo, if it decided to reduce pension promises after its 2008 bankruptcy. Stockton officials no doubt are aware of that threat.
Investor Warning

“Chapter 9 was not intended to be used as a sword to prefer one class of similarly situated creditor over another,” said Assured Guaranty in an Aug. 1 statement. “Stockton’s attempt to transfer the cost of lucrative, above-market employee wages and benefits granted when tax revenues were flush to capital markets creditors by haircutting bond principal is unprecedented, a contortion of the bankruptcy process and will foreclose Stockton’s access to the capital markets for the foreseeable future.”

www.bloomberg.com/news/2012-08-09/california-bankruptcies-shield-retirees-not-bondholders.html