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Wall Street Journal: Pension Crisis in 'Cover Up' Mode

Wall Street Journal: Pension Crisis in 'Cover Up' Mode

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By    |   Saturday, 27 August 2016 04:07 PM


States and actuaries are trying to stifle debate about the growing shortfall in fund assets, Steve Malanga, a senior fellow at the Manhattan Institute, wrote in an opinion commentary for The Wall Street Journal.

“Plunging investment returns have sent debt soaring in state and local pension funds and prompted new financial concerns. Meanwhile, a debate has broken out about whether these pension funds are accurately measuring their obligations. Though the issues might seem arcane, the stakes are high for taxpayers who might have to bail out these funds and for public employees who rely on them for retirement,” Malanga wrote.


The American Academy of Actuaries and the Society of Actuaries recently shut a 14-year-old task force on pension financing when several members were about to publish a paper that found many state and local retirement systems calculate their obligations using overly optimistic future rates of return, the WSJ reported. The authors want states and municipalities to adopt new valuation standards that would make projecting the cost of future benefits more predictable.

“The problem is that this change would also make many public pension funds seem far more indebted than they are under current standards. Such a change would produce more pressure on politicians to boost funding and cut benefits,” he wrote.

The spat is part of a growing fight over how governments measure the value of pension assets. Private-sector retirement funds follow guidelines set by the Financial Accounting Standards Board. But states and municipalities follow voluntary rules from the Government Accounting Standards Board, he wrote.

"The problem is that the arbitrary nature of the valuation standards allows elected officials to pressure pension systems to adopt overly optimistic assumptions, which can make offering new benefits to public workers seem more affordable and more attractive," he wrote.

“The public dispute over accounting standards is a signal to taxpayers, retirees and political reformers that fundamental flaws remain in how pensions measure their finances. The beginning of the end of this crisis won’t arrive until more reasonable, less risky standards are in place,” he wrote.

To be sure, The Economist called the task force's shuttering "very disappointing, since the report (a draft of which has been seen by The Economist) highlights how the approach to valuing American public pensions is highly questionable."

"Still, the two bodies should just allow the report to be published. American public-sector pension deficits are more than $1 trillion, even on the most generous assumptions. This is an issue in which debate should not be stifled."

To drive the point home, the largest U.S. public pension fund recently posted dismal results.

The California Public Employees’ Retirement System earned a return of 0.6 percent on its investments last fiscal year, trailing its long-term target as holdings in stocks and forestland lost money, Bloomberg reported

The pension’s public equity portfolio lost 3.4 percent in the year through June 30 and forestland assets declined 9.6 percent, Chief Investment Officer Ted Eliopoulos said.

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, Bloomberg reported.

(Newsmax wire services contributed to this report).

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States and actuaries are trying to stifle debate about the growing shortfall in fund assets, Steve Malanga, a senior fellow at the Manhattan Institute, wrote in an opinion commentary for The Wall Street Journal.
pension, crisis, cover up, wall street journal
Saturday, 27 August 2016 04:07 PM
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