How could the state get away with lying about the size of the pension problem and why would the media be asleep at the switch?  Here’s how it happens:

The key number in the pension debate is the estimate of unfunded liability.  Illinois claims the total unfunded liability for the five state guarantied funds is $96 billion, a figure the media endlessly repeat without scrutiny. That figure changes dramatically if you change its underlying assumptions, particularly the annual rate of return pensions expect to get on their investments.  Because those assumptions are easily manipulated by politicians, the state hires an outside actuarial consultant to validate its assumptions.  That consultant reported last month that all the state’s assumptions are reasonable.

A nationally prominent actuary, John Bury, derides the report saying even a child could see the problems and contradictions in it.  Skim through the dozens of pages of technical assumptions yourself and ask if if they are subject to guesswork and manipulation. The report is a perfect illustration of why defined benefit plans are impossibly opaque and corrupted. The state’s consultants reached “the conclusions that they were paid to conclude,” says Bury. That’s what consultants do, as anybody who has worked with them knows.

Mr. Bury is quite direct about state-paid actuarial consultants: They are “whores.”

The politicians figure it’s “better not to frighten the children” with the real facts, he says.  Voters and pensioners might get really — and I  mean really — upset.

The most indefensible part of the report I saw was its smug disregard for new rules coming from the Governmental Accounting Standards Board and Moody’s rating agency, and indifference to existing private sector standards.  The unfunded liability rockets up under those standards. The state is not in compliance with them, the report admits, but who cares?  The accounting standards are not mandatory for now, according to the report, so just ignore them.  Adhere to private sector standards that would be still tougher?  Ha!

Illinois remains in denial.  No pension reform proposal on the table comes close to fixing the problem.

Mark Glennon

 

 

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Sue1

My understanding is the pensions assume 7.5 percent to 8.5 per year, and that’s what they have usually done. Whats wrong wit that?

Mark Glennon

Sue, it’s just not a reasonable number any more. That’s not my opinion, its Warren Buffet’s, the entire private sector, the accounting standard board, the ratings agencies, etc. Try to find a place that will assure you a 7.5% return. You won’t come close, anywhere.

AnthonyX

Please print out a copy of this and nail it into the foreheads of the morons at all the papers who lecture us about pension reform but never tell us things like this.

Acesonly

I linked through to the report. That’s the kind of bullshit paper I learned to write in school. If anybody really understands how to fix something with so much to fudge and so much guesswork like inflation rates, its sure not the politicians who are in charge of fixing this. These plans will never be fixed and have to be replaced.

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