Thursday, July 05, 2012

Not all pensions are created equal

So here is one of those factoids that may confuse those who read too much news.

So what do we know about the City of Pittsburgh's pension system? Officially it was funded at around 56%, but that really is an old number. It also is a number that is more than double what it would be if you took out the notional 'asset' that I still find hard to talk about seriously.   No matter.  Pretend it really is 60% for sake of argument.  Only in Pittsburgh logic is that a 'success' when the rest of the world would call it abysmal. 
We also know that the Pennsylvania school pension system (PSERS) is better funded ataround 75%, all real assets by the way. Some consider that low, but still a lot better than a lot of municipalities. Could be better.   
Now all propblems at the Port Authority are being laid at the feet of escalating pension costs.  Sure must be that the Port Authority's pension system is in far worse shape than the city of PSERS right?  Just must be.  
And like all common wisdom, it is far more common than wise.  Here is the time series (page 25) up to the latest public info on the funding ratio for the Port Authority drivers pension system.  Is this what you expected given what is in the headlines?

Seriously.. what number would you have guessed? It turns out a lot of pension math is misconstrued in public.

Note the latest data there is for January 1, 2010 which is still on the heels of some bad stock market losses for most funds.  2010 and then 2011 were both real good years for public pension systems in the US, so maybe they are even higher than the 87%.  Think about that.  The current funding ratio might be a slightly relevant number for the current public debate?
The absolute numbers of relevance are that the calculated liability is $781 million and the assets available are $681 million.   Compare to the City of Pittsburgh which is now over a $billion in calculated liability and an ever diminishing amount of liquid assets to cover it.  I have never seen any reporting on how well funded the drivers pension plan is.  In fact, I have seen no reporting of the hard data on the pension plans $$ assets at all.    
In fact..  I wonder a bit.   That January 1, 2010 calculation for the liability value is a dynamic number as actuarial valuations too often are.   The assumptions include some very steady wage increases for the Port Authority drivers.. all of them.  What do we know?   A lot of drivers are about to be laid off as routes are cut.  Lots of that liability is about to be lopped off, maybe a lot of that liability has already been taken off the books given layoffs since that January 1, 2010 reference data now 2.5 years ago.  I bet wage increases will come in a bit lower than the actuary assumes which would also lop off a big part of the liability calculation.  A small change in that assumption will bring down the calculated liability a lot actually. Could it be that if there was a current actuarial valuation that the current asset values would make it fully funded?  If not, it certainly may be the best funded large public pension system in Pennsylvania.  You would never get that from the headlines though. 
Now..  the retort is that the the issue is health care costs, and in particular pension health care costs.  True.  But note that once you start talking about health care costs you are talking about something different from the pension discussion normally in the public debate for say the City of Pittsburgh.   Lots of public institutions have a big health care liability that is completely unfunded and is basically a big train wreck going to happen. It is a nearly ubiquitous problem in both public and private sector.  It just becomes an apples and oranges discussion when you talk about the pension problem at the Port Authority if there is any comparison to the pension debate for the city which mostly ignores the problem. 
In fact there is a really convoluted aspect to this.   The Port Authority has some big pension cost problems when it comes to health care expenses now and in the future.  The big reason is that the health care liability has no $$ put toward it.  That is a very different problem than what I think most people assume that the pension fund itself is underfunded.  Like most public institutions you can't say it was a big secret this health care bill was coming due.

Also was no secret that most public institutions were not putting money away for the expenses they knew were coming due.  In fact I think the rule that nominally is forcing public institutions to address this big looming problem, something called GASB 45, was mentioned right here years ago..  2006 actually if you poke at that link so yes I know what the issues are.  That the Port Authority is ramping up payments to fund some of the that health care liability is actually commendable for the record.  But if you are are lead to believe that the Port Authority is in worse shape than the city which also clearly has several hundred $million in unfunded health care liability but is just choosing to continue without such contributions is a meaningless comparison.   Also a little issue with Allegheny County as well which has seen its pension funding ratio falling behind over the last 5-10 years.  Few mention that much, or talk of shutting down a third of the county.  Maybe we can lop off everything north of the Allegheny River? 


Blogger BrianTH said...

I understand this may be a useful corrective to various common misassumptions (which in turn are typically being actively promoted by various anti-transit politicians and their media allies). But at the end of the day, the precise problem is that PAT meeting its legacy cost obligations is taking away funding from operations.

And right now, there is no mechanism under state law to restructure or trim those obligations (and no, just cutting PAT's state funding is not such a mechanism--those cuts come straight out of operations, and don't touch legacy cost contributions).

Friday, July 06, 2012 10:15:00 AM  

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