August 14, 2013 03:53 PM UTC

Wall Street Journal Columnist Calls Deliberate Public Pension Underfunding, Like that of Colorado PERA, "Corruption."

• 2 Comments
• by: PolDancer

STUDY: ABOUT 40 PERCENT OF PUBLIC PENSION PLANS REPORTING HAD LOWER FUNDING RATIOS THAN COLORADO PERA AT THE TIME OF PERA'S CONTRACT BREACH.

On February 28, 2011, Wilshire Consulting released its 16th consecutive annual report addressing the financial condition of state-sponsored defined benefit retirement systems.

"This is Wilshire Consulting’s sixteenth report on the financial condition of state-sponsored defined benefit retirement systems and is based upon data gathered from the most recent financial and actuarial reports provided by 126 retirement systems sponsored by the 50 states and the District of Columbia."

Link to the 2011 Wilshire Report (covering 2010):

http://www.nasra.org/resources/Wilshire_2010.pdf

"About Wilshire Associates: Wilshire Associates, a leading global, independent investment consulting and services firm, provides consulting services, analytics solutions and customized investment products to plan sponsors, investment managers and financial intermediaries. Its business units include, Wilshire Analytics, Wilshire Consulting, Wilshire Funds Management and Wilshire Private Markets."

"Based in Santa Monica, California, Wilshire provides services to clients in more than 20 countries representing more than 500 organizations with assets totaling approximately US $7 trillion.  With ten offices on four continents, Wilshire Associates and its affiliates are dedicated to providing clients with the highest quality counsel, products and services."

http://www.wilshire.com/aboutus

From the February 28, 2011 Wilshire report:

"Of the 125 state retirement systems that reported actuarial data for 2009, 100% were underfunded."

(My comment: As Colorado PERA officials have told us, the Colorado PERA pension system has been funded at a level exceeding 100 percent only twice in its history, since creation of the Colorado PERA pension system more than 80 years ago.  Public pension liabilities are similar to a mortgage, they do not have to be "paid off tomorrow."  Pension liabilities are paid off over many decades.  Yet, the Colorado PERA Board of Trustees proposes to break Colorado PERA pension contracts and retroactively insert an unnecessary 100 percent funding requirement into PERA pension contracts.  The PERA Board proposes to shift market risk onto Colorado PERA retirees to reach this 100 percent funding level, but members of public pension systems by definition and statute bear no "market risk."

“In 2002, PERA Executive Director, Meredith Williams was asked, because of a downturn in the stock market, if retirement benefits were safe.  He replied, ‘First, the ‘loss’ is due to a decline in the stock market.  PERA still owns the same stocks that it did before the decline and this ‘loss’ is a result of the value of the stock decreasing. It is not ‘lost’ since we haven’t sold the stocks, and because PERA is a long-term investor, we can ride out the bad times the market experiences.  When the market recovers, the value of these stocks will also increase, offsetting this ‘loss.’”

“Mr. Williams was quoted in the same report as saying ‘Most pension funds are considered sound at 80 percent funding levels.’”

“Meredith Williams ‘said at the Senate Finance Committee hearing in January [2010] that PERA needed to be funded at 100 percent.  When the PERA representatives were asked by a member of the committee why in view of the fact that PERA had  only been funded at 100 percent for about seven of the past thirty years [actually two of the last eighty-one years], it was necessary now.  The answer was ‘it just makes things easier.’”

Link:

http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

June 3, 2003

Colorado PERA Executive Director Meredith Williams, CAFR Summary to Members, 2002, 5/21 [REV 6/03]: “PERA directs its efforts at keeping the funding ratio, [the ratio of assets to accrued liabilities] for the three divisional retirement funds at a minimum of 80 percent. A funding ratio over 80 percent is considered good.”

http://www.copera.org/pdf/5/5-21-02.pdf

August 13, 2005

Colorado PERA Executive Director Meredith Williams,. "The liabilities of the system, frankly, will be paid out over multiple decades, and we're talking 70 or 80 years. We're kind of designed for the long haul and we know we're going to experience ups and downs in the marketplace."

http://www.chieftain.com/metro/slow-stock-market-retiree-boom-hurts-pension-system/article_da58863b-1799-50b4-8ff3-0548d16be68c.html

According to the Wilshire report, while the Colorado PERA Board of Trustees contemplated breach of Colorado PERA pension COLA contracts in 2009, 100 percent of public pension plans reporting in the nation were "underfunded," i.e., the plans actuarial value of assets was less than plan accrued pension liabilities.  Should all public pension systems in the USA break their pension contracts until they reach a 100 percent funding level?  Do the United States Constitution and its Contract Clause mean nothing?  Should public employees accept that they work for whatever compensation [deferred pension compensation] their employers choose to provide?)

From the February 28, 2011 Wilshire report:

"Actuarial value funding ratios declined between the years 2001 and 2005, falling from 100% to 86% and holding relatively constant until the 2009 fiscal year’s 6% decrease to an estimated 79%."

(My comment: The 99 public pension systems that reported final actuarial values for 2010 [in the Wilshire report] reveal an average actuarial funding ratio of 76 percent, and an average market-based funded ratio of 66 percent in 2010 [page 4.]  This average actuarial funding ratio was just 7 percent higher than that of the Colorado PERA pension system at the time of the PERA pension contract breach.

Note that approximately 40 percent of these public pension systems had actuarial funding ratios at or below that of the Colorado PERA pension system at the time of the 2010 PERA pension COLA contract breach [page 7].  In spite of the historical mismanagement and underfunding of the Colorado PERA pension system by the Colorado Legislature, approximately 40 percent of these pension systems had actuarial funding ratios at or below that of the Colorado PERA pension system.  Should 40 percent of the public pension systems in the U.S. be permitted to break their public pension contracts due to the 2008/2009 market volatility?)

Wall Street Journal Columnist: Deliberate Underfunding of Public Pension Systems is "Corruption."

As has been documented at saveperacola.com and at the Center for Retirement Research at Boston College, the Colorado General Assembly has not paid its full public pension bill (actuarially required pension contribution, ARC) for a decade.

In 2009, Colorado PERA’s General Counsel Greg Smith blamed the Colorado General Assembly for PERA’s fiscal downturn: “We have not been paid what’s called the actuarially required contribution.” “We’ve not been receiving that full contribution in any of our divisions for many years . . . seven years to be specific.”

http://www.copera.org/pera/about/listeningtour.htm

This deliberate underfunding of the Colorado PERA pension system [ignoring contractual obligations] has permitted the Colorado Legislature to appropriate public funds for discretionary purposes that are popular with the voters who elect them, and popular with statehouse lobbyists.  For example, paying off $700 million in legacy local government pension obligations [Old Hire Police and Fire pension debts] that ARE NOT the contractual obligation of the State of Colorado, and making $100 million discretionary grants of property tax relief.)

Wall Street Journal Columnist Calls Public Pension System Underfunding "Corruption":

August 8, 2013

"Chris Tobe is a columnist for the Wall Street Journal’s Marketwatch.com, a Chartered Financial Analyst and investment professional who has done consulting work on many public pension plans.  He has also served as a trustee of the Kentucky Retirement System and is the author of a new book "Kentucky Fried Pensions: The Culture of Cover-up and Corruption."

Interview with Chris Tobe:

"I compare Kentucky to Illinois, much of whose real corruption happened maybe ten years ago and Blagojevich, the governor, was deeply involved with it.  They’ve also underfunded their actuarially-required contribution [ARC], much like Kentucky.  Those two things went hand-in-hand, in Illinois and Kentucky, probably the two worst state systems.  If people are willing to look the other way at corruption in investments, they’re willing to look the other way at deliberate underfunding, which I consider corruption as well."

"In this particular case, even though they put their stock market performance up at 11% for the year, the assets only grew about 3%, because they are still continuing to underfund and have a negative cash flow. So the state is only putting in 50% of what they’re supposed to, and negative cash flows have actually hurt and dampened the investment return. When you continue to underfund the ARC, it messes up all the usual mathematics."

"The real question is how much transparency is there. A lot of newspaper reporters don’t even know about the pension systems in their own communities. There’s not a whole lot of knowledge by the public. Where the public is engaged and there’s a culture of full disclosure and transparency, you tend to have better pension funds, and it depends on who the board members are on pension funds. If you have people who are sincere community people who are looking out for everybody’s best interests, and they’re willing to speak out, I think that creates the right atmosphere."

(My comment: As we have seen, Colorado PERA uses our PERA trust funds to produce propaganda supporting PERA pension contract breach.  When the Colorado Court of Appeals reversed the decision of the Denver District Court, finding that Colorado PERA pension COLA contracts are a contractual obligation of PERA employers, the Denver Post inexplicably labeled this reversal a "win" for the Colorado PERA defendants.  Clueless? or Biased?

Colorado PERA pension administrators, members of the Colorado Legislature's Joint Budget Committee, Legislative Audit Committee, and House and Senate Finance committees have historically "looked the other way" at deliberate PERA pension underfunding.  For a decade, Colorado PERA pension administrators have been adhering to their own "Don't Ask, Don't Tell" policy relating to PERA pension underfunding.  The failure of the Colorado Legislature to pay the PERA pension system "ARC" is regularly skimmed over in a few seconds in meetings with state legislators who, by design, do not even know what an "ARC" is.  Colorado PERA seeks to break its pension contracts although Colorado governments contribute less than three percent of all revenue to public pension obligations, well below the national average.)

Interview with Chris Tobe:

"I’m more of a proponent for government in general, and I think that holding them to the ERISA standards would get rid of a big portion of the corruption that’s out there.  A corporate pension plan could not pay half the payments for ten years like the states like Kentucky and Illinois have done.  Those guys would be in jail.  I think that public pension plans should be held to the same standard as corporate defined benefit plans.  There may need to be some type of federal bailout. If there is, we want some accountability."

Link:

http://www.publicsectorinc.org/podcasts/070613tobe.php#.UgQ3zr7nbX5

(My comment: The Colorado General Assembly was fully aware that equity markets had recovered significantly when a majority of its members voted to break Colorado PERA pension contracts in early 2010.

2009

Senator Josh Penry, co-prime sponsor of SB10-001, in a videotaped discussion with Representative Mike May, [videocenter. denverpost.com] said ‘we can’t, can’t miss this window.’  And, . . . we have an opportunity to pass something that Republicans have long advocated, a significant increase in retirement age, which the PERA Board embraced, reigning in the cost of living increases . . .

“Penry went on to say, ‘I think it is important to pass something because if you lose actuarial necessity, as you know, it becomes extremely difficult to increase retirement age. You cannot change course and this year, when PERA’s investment numbers come out, their investment returns . . . numbers are going to be significant, like double, 15-16% investment return. So that could change the specter of actuarial necessity. We gotta’ do it this year or else these other structural changes won’t be possible.”

http://www.leg.state.co.us/Clics/clics2010a/commsumm.nsf/b4a3962433b52fa787256e5f00670a71/84960fa73d53e222872576c600712e80/$FILE/10HseFin0210AttachG.pdf

I find it remarkable that the co-prime sponsor of SB10-001 intended to use recent market volatility to justify the PERA pension contract breach in early 2010, that he was fully aware that equity markets had recovered significantly, that he had no aversion to stating that his intent was to justify the SB10-001 PERA contract breach based on reported PERA funding ratios that he knew to be outdated, ratios that obviously did not reflect the current funding status of the Colorado PERA pension system.

I find it incredible that THE CO-PRIME SPONSOR OF SB10-001 INTENDED THAT SB10-001 OPERATE RETROSPECTIVELY, IMPAIR VESTED PERA PENSION RIGHTS CREATED IN SUBSTANTIVE STATUTES, IMPOSE A NEW DISABILITY ON PERA RETIREES, AND DEFEAT EXPECTATIONS REGARDING THEIR PERA CONTRACTS (if you have time read the Colorado Supreme Court case, Golden v. Parker.)

Link to complete Wilshire report:

http://www.nasra.org/resources/Wilshire_2009.pdf

Former Colorado PERA Executive Director Meredith Williams:

August 1, 2008

Colorado PERA website, "Ask Meredith": "Keep in mind that PERA is a long-term investor with a time horizon that is much longer than individuals have.  PERA does not 'time the market' nor do we actively move assets to less risky investments when the market is falling.  Because PERA is a long-term investor, we know that at times we'll have losses, but those losses will be offset by gains over the long run in PERA's diversified investment portfolio. The bottom line is that the PERA portfolio is well diversified and able to withstand the ups and downs of the market over time.
– Meredith"

https://www.copera.org/pera/about/askm.htm

December 19, 2008

Colorado PERA Executive Director Meredith Williams assures PERA retirees that market volatility has no impact on their contracted pension benefits:

"Since PERA is a defined benefit plan, your benefit is not based on the fluctuations in the financial markets, but on your contributions, age, and years of service."

https://www.copera.org/pera/about/askm.htm

May 29, 2011

Colorado PERA Executive Director Meredith Williams, Pueblo Chieftain:

“Retired public servants who live on fixed incomes no longer get the same cost-of-living-increases upon which many had come to depend.”

“In fact, about 90 percent of the changes enacted by Senate Bill 1 are falling on the shoulders of current and future PERA members and retirees — not other taxpayers.”

“Most PERA beneficiaries don’t qualify for Social Security so their modest PERA benefit may be the only steady retirement payment they’ll ever receive.  After careers in public service, this is a reasonable reward.  They have earned it.”

http://www.chieftain.com/opinion/ideas/legislative-changes-have-put-pera-fund-on-a-solid-footing/article_3080a01c-88cd-11e0-ad01-001cc4c03286

Colorado PERA active and retired members, defend your public pension contractual rights.  Contribute at saveperacola.com.  Friend Save Pera Cola on Facebook!