Peering past the singularity
I still think it is ridiculous that there is virtually no pubic information on the pension fund, what is clearly now the single biggest policy conundrum facing the future of the city of Pittsburgh as a municipal entity. That I have the only public posting of the city's actuarial reports on the pension system is, quite honestly, an embarassment. Nobody seems to care though which is not a knock on the public as a whole as a lot of folks paid lots of money to care about the most esoteric of things. Act 47 ignored all the hard questions associated with pensions. The ICA could be conducting ongoing guerilla tactics to improve the status quo. Everyone collectively likes to ignore the issue. Some form of group-think, or group enabling going on. Some like to blame the city for the mess it is in, but there are a whole cast of accomplices and unindicted co-conspirators.
City Budget Director Scott Kunka likened that to yelling "Fire!" in a crowded theater.... on track to fully fund the pension?? That's what they said. Begs the question of why it's so important all of a sudden to get money from the lease of the parking assets? That quote is from the end of 2008, so the wall street crunch had already taken its toll on the pension assets. In fact pension funding would rebound a bit over the next year. If it was not a problem back then, it is not a problem now. Of course it was a problem at the time.
"I think that the data was inaccurate. It's quite a bit of a distortion," Kunka said. The city is legally required to fully fund the pension and is on track to do so, he said.
There has been a real cost to all of this. I mentioned this earlier, but I may have been a bit too indirect. The short story if you re-read that post is that the city was so concerned a couple months ago with ongoing investment losses that they 'locked in' the pension assets at the time. Who knows if they really did, but that was they said publicly based on decisions at the last pension board meeting. It was in a sense a large bet akin to try and time the market. It would be that they made a big bet that the stock market was going to continue to go down. In fact, the day that was in the news was the lowest the stock market has been in the last 6 months and the markets would generally appreciate 10% or more over the subsequent month.
So it seems to me that the city lost out on that gain because of their decision to 'freeze' the pension assets. Now I presume actually moving money out of bond or equity markets would be costly, I infer that the decision they announced meant they placed a large
How much could the loss be? Well, the stock market really did go up by 10% or so. You would hope that the city's pension assets are not 100% in equities, although the actuarial assumption fo 8% returns in perpetuity would almost force them to be. Lets assume for sake of argument a 50/50 split between equities and bonds. So that notional 10% loss would be more like 5%. 5% on an asset base of $270 million equals a scary number.
I'll stop the math there since it is a back of the envelope calculation based on minimal information... see the first paragraph on the lack of information problem. I can't say they really did the hedge or not.. nor put a dollar amount on the potential loss, but if they did go through with it we are talking about 7 or even 8 figures. Would be one of the biggest blows to the pension fund in some time.
But we just don't know.