Detroit's pension boards to send 4 trustees to Hawaii

[Wesley Mouch]

When I worked for the Feds, I used to get a set travel amount based on airfare to the destination. Sometimes I would rent a car and drive, doing some sightseeing on the way there or back. As long as I was there when I was supposed to be and didn't exceed the set travel amount, they didn't care.

My private sector experience has been just the opposite. Years ago, that was pretty much true. Over the last decade or so, 'travel expenses' became a focus of the bean counters. I could still move money from, say, airfare to car rentla -- but it required much more review and advance agreement. From what I've read, this is a trend. Companies now employ software to monitor travel expenses and review each and every line item in comparison to industry trends.

Guessing here, I think the public sector in Detroit hasn't yet received the memo.

Glad the feds are being reasonable. Travel is often no joy at all -- but it can be rewarding for the company and the individual if done right.

[Locke09]

My private sector experience has been just the opposite. Years ago, that was pretty much true. Over the last decade or so, 'travel expenses' became a focus of the bean counters. I could still move money from, say, airfare to car rentla -- but it required much more review and advance agreement. From what I've read, this is a trend. Companies now employ software to monitor travel expenses and review each and every line item in comparison to industry trends.

Guessing here, I think the public sector in Detroit hasn't yet received the memo.

Glad the feds are being reasonable. Travel is often no joy at all -- but it can be rewarding for the company and the individual if done right.

Detroit has never just given someone a fixed amount to spend as they wish. You have to have receipts and return any money for which you cannot account. Long ago they gave a per diem for food, but many years ago they started requiring receipts even for food expenditures.

The State of Michigan should be sending MPERS pension board members to more conferences. Perhaps then those boards would be better than 65 and 64 percent funded, whereas Detroit's boards are 99 and 83 percent funded.

[Wesley Mouch]

...snip...The State of Michigan should be sending MPERS pension board members to more conferences. Perhaps then those boards would be better than 65 and 64 percent funded, whereas Detroit's boards are 99 and 83 percent funded.

I'm sure you're aware that Snyder's man on the scene differs with your figures. Why everything here is just great. No pension problems whatsoever. You can trust me. Signed -- Ronald Zajac

[Wheels]

Two of the trustees that are going are Bing appointees. They will be gone with Bing. How much bang for your buck are you getting there?

[Packman41]

....<snip>
The State of Michigan should be sending MPERS pension board members to more conferences. Perhaps then those boards would be better than 65 and 64 percent funded, whereas Detroit's boards are 99 and 83 percent funded.

Those funding figures you believe in are a pipe dream.

According to the Financial Revew Board both Pension Funds are massively underfunded.

The following is from a newspaper article of a few months ago – no link as it is too late now.

“If the moderate- to worst-case scenarios are true, then I don't see how Detroit avoids bankruptcy," Eric Scorsone, a Michigan State University economics professor specializing in public finance, told The Detroit News Wednesday. "The pensions are probably dramatically underfunded. Even an emergency manager wouldn't be able to touch pensions.

"You'd be talking about hundreds of millions that would need to be paid into those pension funds. There's a case that you want to try an emergency manager and see if it works because bankruptcy is a very expensive process."

The city's General Retirement System, adjusted for market value of assets and actuarial assumptions, is just 32 percent funded, according to individuals familiar with analysis conducted for the city by an independent consultant. For the Police and Fire Retirement System, the corresponding funding level is 50 percent, in both cases substantially less than officially reported by Detroit.

[Locke09]

Those funding figures you believe in are a pipe dream.

According to the Financial Revew Board both Pension Funds are massively underfunded.

You must have missed the part where they admitted that the Financial Review Board's assessment is based on a report by a consultant that admitted that it was a "high-level first draft guesstimate."

People are supposed to believe a high-level guesstimate or an imaginary worst-case scenario over an independent auditor's evaluation of the pension funds? Anyone can adjust assumptions to make any case they want, positive or negative.

what we do know for a fact is that MPERS, by their own evaluation, is only 65% funded. By the State's own criteria, MPERS is therefore in great distress and should be taken over by the State - oh wait...

[Zacha341]

Hah! Make sure to pick up your respirator mask at the registration desk. Hotel room comes with complimentary eye-rinse sinks and water purification tablets!

Zug can be quite nice in the summer, depending on which way the wind is blowing, of course.

[Eber Brock Ward]

You must have missed the part where they admitted that the Financial Review Board's assessment is based on a report by a consultant that admitted that it was a "high-level first draft guesstimate."

People are supposed to believe a high-level guesstimate or an imaginary worst-case scenario over an independent auditor's evaluation of the pension funds? Anyone can adjust assumptions to make any case they want, positive or negative.

what we do know for a fact is that MPERS, by their own evaluation, is only 65% funded. By the State's own criteria, MPERS is therefore in great distress and should be taken over by the State - oh wait...

Aren't the Detroit funds assuming something like 7% year over year growth?

If so, things are much worse than you or I can imagine. That's robbery.

[Honky Tonk]

I'm reserving comment until I see what wonderful gems of management and policy making these representatives learned in HI on my dime.

[Packman41]

Aren't the Detroit funds assuming something like 7% year over year growth?

If so, things are much worse than you or I can imagine. That's robbery.

No, the pension funds investment rate assumptions are higher than that. General Retirement System [[GRS) assumes 8.0% and Police & Fire [[P&F) assumes 7.9%

The average composite rate of return for ALL pension funds in the USA since 2000 was 5.7%, yet these two funds hope/need to earn 7.9 % to 8%. Whenever the actual rate is less than the assumed rate, then the amount of underfunding increases.

Experts say that for every 1.0% of difference between actual return rate [[4.7% was GRS actual investment rate from 2006 to 2011) and the target rate [[8.0%) then the amount of underfunding is misstated by 15%. Result; these funds are underfunded by about 49.5%.

GRS: 82.8% - 49.5% = 33.3% funded
P&F: 99.9% - 49.5% = 50.4% funded

[Honky Tonk]

Hah! Make sure to pick up your respirator mask at the registration desk. Hotel room comes with complimentary eye-rinse sinks and water purification tablets!

Does Survivor know about this place?

[Eber Brock Ward]

Thanks, Packman. I knew it was something pretty ridiculous.

I shocked that more people aren't harping on this, particularly retirees whose pensions are in grave danger.

[cla1945]

Thanks, Packman. I knew it was something pretty ridiculous.

I shocked that more people aren't harping on this, particularly retirees whose pensions are in grave danger.

Believe me, I've been bitching to anyone at the CAY or Retiree system who will listen. This is the most blantant misuse of funds I've seen lately. You're going to tell me that my pension will be cut while these trustees are off to Hawaii for 6 days, one flying first class??? I've got a very good investment broker who has helped me with my meager nest egg...you could have asked me for a reference and I would have been glad to provide his phone number. The EM should get rid of their a$$es as soon as they step off the plane.

[Ray1936]

I shocked that more people aren't harping on this, particularly retirees whose pensions are in grave danger.

As Lt. Kaffey responded in "A Few Good Men", "GRAVE danger?"

State Constitution of Michigan of 1963 [[current):
Section 24: "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions [[Italics mine) shall be a contractural obligation thereof and shall not be diminished or impaired thereby."

There are those who feel should Detroit's pension well run dry, the State would be obligated to rescue it. Interesting, eh?

[Wesley Mouch]

You must have missed the part where they admitted that the Financial Review Board's assessment is based on a report by a consultant that admitted that it was a "high-level first draft guesstimate."

People are supposed to believe a high-level guesstimate or an imaginary worst-case scenario over an independent auditor's evaluation of the pension funds? Anyone can adjust assumptions to make any case they want, positive or negative.

what we do know for a fact is that MPERS, by their own evaluation, is only 65% funded. By the State's own criteria, MPERS is therefore in great distress and should be taken over by the State - oh wait...

Locke, you give proof that there's something structurally wrong with how the taxpayers representatives handle taxpayer funding of public pensions. [[You can argue that its the taxpayer's employee's money, but right now that's clearly not the case, since there's not enough.)

How can all these sources have different figures? What's wrong with this picture?

[Wesley Mouch]

As Lt. Kaffey responded in "A Few Good Men", "GRAVE danger?"

State Constitution of Michigan of 1963 [[current):
Section 24: "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions [[Italics mine) shall be a contractural obligation thereof and shall not be diminished or impaired thereby."

There are those who feel should Detroit's pension well run dry, the State would be obligated to rescue it. Interesting, eh?

Your post reminds me just that there's little reason to care about what the pension trustees do with the money. It guaranteed by state taxpayers! Yeah! I wonder if there'll be a groundswell against state funding of pensions.

No EFM and no state pension payments for us! We'll pay for our own pensions! We won't accept a state EFM nor State pension funds!

[Packman41]

Your post reminds me just that there's little reason to care about what the pension trustees do with the money. It guaranteed by state taxpayers! Yeah! I wonder if there'll be a groundswell against state funding of pensions. <...snip...>

And that is just the problem.

The trustees are NOT held accountable for either their actions or the investments they make. Because the taxpayers with the "bottomless" checkbook are asked to bail them out of the problems they caused.

Do you think if the Pension Funds followed ERISA rules of investment or were not bailed out by a taxpayer guaranty that they would act this way? HELL NO!

When I was a kid I learned that the last person to touch something that was later found out to be broken was at fault. These trustees [[none of whom have the background to make these investment decisions) touched the money last. They are at fault.

[Eber Brock Ward]

And that is just the problem.

The trustees are NOT held accountable for either their actions or the investments they make. Because the taxpayers with the "bottomless" checkbook are asked to bail them out of the problems they caused.

Do you think if the Pension Funds followed ERISA rules of investment or were not bailed out by a taxpayer guaranty that they would act this way? HELL NO!

When I was a kid I learned that the last person to touch something that was later found out to be broken was at fault. These trustees [[none of whom have the background to make these investment decisions) touched the money last. They are at fault.

I bet that the retiree contingent would activate damn quickly if a policy were put in place whereby the city de-fund retiree health care benefits to the extent necessary to fully fund the pension system using reasonable actuarial assumptions.

Given how badly underfunded the systems are now, it'd only be fair to ramp it up, though.

[Locke09]

No, the pension funds investment rate assumptions are higher than that. General Retirement System [[GRS) assumes 8.0% and Police & Fire [[P&F) assumes 7.9%

The average composite rate of return for ALL pension funds in the USA since 2000 was 5.7%, yet these two funds hope/need to earn 7.9 % to 8%. Whenever the actual rate is less than the assumed rate, then the amount of underfunding increases.

Experts say that for every 1.0% of difference between actual return rate [[4.7% was GRS actual investment rate from 2006 to 2011) and the target rate [[8.0%) then the amount of underfunding is misstated by 15%. Result; these funds are underfunded by about 49.5%.

GRS: 82.8% - 49.5% = 33.3% funded
P&F: 99.9% - 49.5% = 50.4% funded

The last annual report would take the amount currently in the fund, subtract the amount needed to pay all future liabilities [[based on actuarial assumptions) and the difference would be the unfunded liability, or surplus. It would already have taken into consideration the lower investment returns.

One of the assumptions made to determine future rate of growth of the investment, is average rate of return. Shouldn't this only affect future assumptions, not the current valuation?

If GRS did not realize 7.9% in the year ending June 30, 2012, then that unfunded liability will have grown. It would continue to grow for any future years where the return on investment was not realized and the City failed to make its contribution. I'm willing to bet GRS got far more than 7.9% in 2012 and will get far more than 7.9% in 2013.

Therefore, the unfunded liability should actually be getting smaller, except the City keeps getting permission to defer its annual contribution to the pension. If the pension is in trouble, the City is harming it more by deferring contributions that could be reaping the benefits of this market.

Historically both pension funds have done very well in return rates, 2008 and 2009 and national averages notwithstanding.

[Locke09]

First someone has to state which actuarial assumptions are unreasonable and in what manner they contributed to the underfunding. We keep acting as though we know for certain that they are more severely underfunded than they claim to be. Absolutely no evidence has been provided to validate this.

And I don't think retirees are unconcerned about what trustees do. That is a blatantly unfair characterization. When the funds are healthy, everyone breathes easier.

[4V4DMD]

Unbelievable. Kudos to the Detroit Free Press for picking this up.

[Eber Brock Ward]

The last annual report would take the amount currently in the fund, subtract the amount needed to pay all future liabilities [[based on actuarial assumptions) and the difference would be the unfunded liability, or surplus. It would already have taken into consideration the lower investment returns.

One of the assumptions made to determine future rate of growth of the investment, is average rate of return. Shouldn't this only affect future assumptions, not the current valuation?

If GRS did not realize 7.9% in the year ending June 30, 2012, then that unfunded liability will have grown. It would continue to grow for any future years where the return on investment was not realized and the City failed to make its contribution. I'm willing to bet GRS got far more than 7.9% in 2012 and will get far more than 7.9% in 2013.

Therefore, the unfunded liability should actually be getting smaller, except the City keeps getting permission to defer its annual contribution to the pension. If the pension is in trouble, the City is harming it more by deferring contributions that could be reaping the benefits of this market.

Historically both pension funds have done very well in return rates, 2008 and 2009 and national averages notwithstanding.

The obligations of the fund extend beyond the "current valuation."

Very simply, when you calculate how a particular system is funded, you have to take into account actuarial assumptions about how long people are going to live, annual COL adjustments, if any, and so on. This extends into the future, obviously, and represents obligations of the system.

In turn, you have to calculate future sources of funds for the system. One *major* component of that is future earnings on investments. While most "safe" investments are yielding <2% right now, they are assuming around 8%.

So there is a huge future gap in the funding. If we only looked at the present fiscal year in determining funding level, pretty much all systems would be funded way beyond 100% because you could just draw on assets and pay all obligations that year, even if it kills you for the future [[which is what has been past practice here).

[Packman41]

...<snip>..
I'm willing to bet GRS got far more than 7.9% in 2012 and will get far more than 7.9% in 2013.

...<snip>...
Historically both pension funds have done very well in return rates, 2008 and 2009 and national averages notwithstanding.

Betting. Instead of knowledgeable investing…that is a major part of what got us here in the first place.

And you may want to check your sources for the investment results for both the funds in 2008 and 2009. According to reports prepared by the Funds own auditors, Plante Moran, dated June 30, 2012 the results are as follows:

Years GRS P&F
2008 -4.2% -6.3%
2009 -18.9% -14.8%

And in 2012 they had -0.4% and -1.47% return respectively. Remember, over the period of 2006 to 2011 the GRS had a total average annual return of 4.7%. So if you factor in the 2012 results they will be down slightly from the 4.7% number.

So with these results the Funds start chasing yield, i.e. betting, on riskier investments in order to get the 7.9%/8.0% yield they NEED. The result is poor investment quality –also from the Plante Moran report:

Percentage of Debt Securities BELOW investment grade: P&F 66.2% GRS 81.3%
Percentage of total assets with indeterminate fair market value: P&F 25% GRS 32%

These two measures of credit risk are breath-taking. When you chase a high yield, then you also get high risk – there is no escaping that and the potential for high losses. Combine that risky portfolio along with the corruption and indictments from the FBI and you have a recipe for disaster. Now mix in the $103 Million the CofD FAILED to fund the pensions last year and it gets only worse.

[Cincinnati_Kid]

Greed is destroying this country. You've got CEO's bringing home millions if the company succeeds or not, while everybody else has to fight over the crumbs left over. It's no different with the public sector as we're seeing now with Detroit.