Friday, August 24, 2012

29 is the new zero

So here is an issue a lot of us have been kvetching about for a long time.  Boomberg has this today on the vast unknown of how all the thousands of municipal pension funds in Pennsylvania spend to administer their pension plans: Pennsylvania Pays Pension Penalty as Bond Costs Climb.   It may be the single biggest black hole in Pennsylvania public finance.  and the administration costs probably are just the part of the iceberg you can see.  Nobody really can tell you whether the investments all those micro-plans are making really make sense.  Even the big plans that have lots of eyes on them do some really bizarre things that lose $millions.  Imagine what we don't know about the investment decisions of the other 3,000 or so pension plans in Pennsylvania.
Locally I can’t read the pension news any longer since it all makes so little sense to me. Today:  City Pension Board Rejects Studying ‘Realistic’ Returns.  Pension doing well, pension doing poorly?  Who knows really?  The latest update on the status of the Pittsburgh pension fund is that it's funding ratio went down by 1.7%.  OK what does that mean?

The numbers mean very little.  Skipping the long story, the pension ‘fund’ includes in its valuation a notional asset made up of a semi-codified promise of future parking tax revenue.  It is said the promise of future revenues have increased the funding ratio of the pension fund by 29%.  We will skip the fact that law and contracts all effectively mean that the city has promised to pay the pension fund anyway.  If the promise gets to be valued as an asset, then there isn't any real need to be quantifying how funded the system is in the first place  OK, that is almost philosophical.  Skip the big picture question, but the real question is how well funded is Pittsburgh's pension system? 

So think about it.  If the pension fund had zero liquid or semi-liquid assets then it would still have this promise of future payments that kind of exists no matter.  If there were no liquid assets then you can’t spend the future promise of payments unless you borrow against them. So if consistent with the regular reporting on this, the official calculation would be that the pension fund would be funded at a 29% funding ratio.  No cash to send out checks, but no matter.  In other words 29 is the new zero.

So even if the news is minimal, the issue won't go away even if the city wants it to.  For the microscopic % out there who might be able to read this past the paywall, but Bondbuyer recently covered us: Pittsburgh Wants toEnd Oversight, But Pensions Present Problems.  PBT earlier in the month if you missed it: Pittsburgh’s pension-fund projections met with skepticism

and as mentioned here in the past.. there are some more interesting things coming down the road with regards to public pension accounting nationally. 



Blogger Bram Reichbaum said...

29 was the new zero a year ago. Depending on the performance of the old-fashioned portion of the pension fund, we could actually "track the performance" of the notional asset relative to the rest. It has probably appreciated to at least 35% by now.

I'm guessing the pension board will find it difficult to meet in the first part of 2013.

Friday, August 24, 2012 5:35:00 PM  

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