Evanston’s public safety pension problems draw a brief mention in a long New York Times report today about overly-optimistic assumptions made across the nation by actuaries hired to monitor public pension funds.
The story suggests a need for more regulatory oversight of actuaries to make sure taxpayers aren’t left holding the bag for overly generous, under-funded pension programs.
Meanwhile, the Chicago Tribune reports that Illinois lawmakers are considering bailing out state pension funds by issuing pension obligation bonds, a technique that Evanston aldermen have put on hold while they wait for recommendations from a blue ribbon committee they’ve named to review the pension mess.
Pension Deficit
Has anyone attended any of the blue-ribbon meetings to find out what they are doing?
There should be regulatory oversight of public pension fund solvency, just as there is for private pension funds. This is different than regulation of actuaries.
The two main problems I see with the last actuarial report were:
1) the investment return assumption of 7.25% is way to high
2) planning based on long-term average returns does not account of shorter term risk. Actual investment performance in the next 10 years matters more than a long term average.
Evidence of these deficiencies can be found if you look at what it would cost to transfer the pension obligation to a thrid party with AA or better credit.
Pension Fund Comments
Stephen,
I agree that 7.25% is too high, not only in terms of likely economic conditions, but also because the pension is limited to types and amounts of investments it can make. 4.5% to 5.5% after fees is more realistic.
No doubt as to why we have such a pension mess.
vito