When politicians and unions representing state employees tell you that pension and retirement liabilities are under control – don’t believe them.
Why? Because by changing one variable on how the liability is calculated, the liability can be reduced by huge amounts.
While calculating these liabilities are complicated, that one variable is simple. It is the figure used in assuming how much the value of assets held in pension accounts will increase annually.
Most states – including Connecticut – use an 8 percent figure. That means that states are assuming that each year the value of the pension funds will increase by an average of 8 percent.
The problem with that is the 8 percent assumption is totally bogus.
For kicks, ask Connecticut politicians how they can with a straight face claim that kind of average when over the past 10 years the average has been 5.7 percent over the last 10 years. Just use your experience. Have you earned anywhere close to 8 percent a year?
New York Mayor Michael R. Bloomberg recently called “indefensible” this practice.
“The actuary is supposedly going to lower the assumed reinvestment rate from an absolutely hysterical, laughable 8 percent to a totally indefensible 7 or 7.5 percent,” Mr. Bloomberg said during a trip to Albany in late February. “If I can give you one piece of financial advice: If somebody offers you a guaranteed 7 percent on your money for the rest of your life, you take it and just make sure the guy’s name is not Madoff.”
Much of the opposing to making these assumptions reasonable comes from “public-sector unions, which fear that increased pension costs to taxpayers will further feed the push to cut retirement benefits for public workers. In New York, the Legislature this year cut pensions for public workers who are hired in the future, and around the country governors and mayors are citing high pension costs as a reason for requiring workers to contribute more, or work longer, to earn retirement benefits.”
