Yahoo...yield curve inversion...how long does Illinois have left? (Detroit: insurance, credit card)

[Liledgy]

Originally Posted by Kmanshouse

I'm a pension actuary, but in the private sector.

Most likely, the actuaries just continued to use outdated, too high discount rate assumptions that are completely unrealistic. The public pension rules are much more lax than in the private sector when it comes to the assumptions actuaries are allowed to use.

They likely raised some red flags, but God forbid they use something like 4-5% to value the liabilities. I've seen plans still using 8%, because "that's what it's always been, and it's a long term assumption". Banking on the fact long term, rates will increase back to what they were in the 90s and they'll be "right" again.

Then do you care to explain why the IMRF is fully funded? Could it be that both the doors mployees and the employer never missed a payment.

[GhostOfAndrewJackson]

Originally Posted by Liledgy

Then do you care to explain why the IMRF is fully funded? Could it be that both the doors mployees and the employer never missed a payment.

It is not fully funded and it is a fiscal disaster like all non-cash balance defined contribution plans are. It is more than 5 billion underfunded and simply masks its issues because of the annual funding mandate.

I would say you need to educate yourself but it seems pretty clear you have an agenda that has no foundation in actuarial science, finance, or proper fiscal governance.

In the event you actually care to open your mind to a portion of the issues surrounding the IMRF the following article sheds some light on some of the issues surrounding the IMRF.

https://www.illinoispolicy.org/5-fac...-pension-fund/

This article should also be illuminating:

https://www.chicagotribune.com/subur...812-story.html

[GhostOfAndrewJackson]

Originally Posted by Kmanshouse:
I'm a pension actuary, but in the private sector.

Most likely, the actuaries just continued to use outdated, too high discount rate assumptions that are completely unrealistic. The public pension rules are much more lax than in the private sector when it comes to the assumptions actuaries are allowed to use.

They likely raised some red flags, but God forbid they use something like 4-5% to value the liabilities. I've seen plans still using 8%, because "that's what it's always been, and it's a long term assumption". Banking on the fact long term, rates will increase back to what they were in the 90s and they'll be "right" again.

Originally Posted by Liledgy:
Then do you care to explain why the IMRF is fully funded? Could it be that both the doors mployees and the employer never missed a payment.

This was, in part, explained in my previous posts. Part of the key is in the assumed rate of return. The higher the assumed rate of return the lower your pension liability. So being told that a plan is 80, 90, or 100% funded may sound good but you have to take that in the context of the plans assumed rate of return and off the books scheduled liabilities (for example pension spiking).

As our resident pension Actuary, Kmanshouse explained, private plans are forced to use far more conservative numbers of 4 to 5% and generally have greater restrictions on the investments, which means they have higher actual funding. The 5 Illinois state pension plans and most other municipal pension plans use a more speculative assumed rates of return thus lowering how much money actually has to be committed to the plan in order to claim it is fully funded.

[dtcbnd03]

And that is why pension plans are legalized ponzi schemes. Promise you X...but only deliver Y...which is often 0. I seriously don't understand the difference between the two.

[Jon998877]

Originally Posted by GhostOfAndrewJackson

This was, in part, explained in my previous posts. Part of the key is in the assumed rate of return. The higher the assumed rate of return the lower your pension liability. So being told that a plan is 80, 90, or 100% funded may sound good but you have to take that in the context of the plans assumed rate of return and off the books scheduled liabilities (for example pension spiking).

As our resident pension Actuary, Kmanshouse explained, private plans are forced to use far more conservative numbers of 4 to 5% and generally have greater restrictions on the investments, which means they have higher actual funding. The 5 Illinois state pension plans and most other municipal pension plans use a more speculative assumed rates of return thus lowering how much money actually has to be committed to the plan in order to claim it is fully funded.

All that said, if the state would have held up their end of the bargain and funded the pensions at the level they were suppose to, the current problem would be a LOT less severe. But instead the state wanted to create entitlement programs and waste endless billions of dollars in other areas and now everyone wants the teachers to suffer because of it? Forget cutting pension promises. lets instead start cutting welfare programs and diverting that money into the pension programs until they are caught up

[dtcbnd03]

Originally Posted by Jon998877

All that said, if the state would have held up their end of the bargain and funded the pensions at the level they were suppose to, the current problem would be a LOT less severe. But instead the state wanted to create entitlement programs and waste endless billions of dollars in other areas and now everyone wants the teachers to suffer because of it? Forget cutting pension promises. lets instead start cutting welfare programs and diverting that money into the pension programs until they are caught up

Pensioners need to stop thinking they're gonna get 100% of their money. It's not gonna happen. Unfortunately you've signed up for a ponzi scheme. You've been swindled. It sucks but cut your losses....vote in union leadership that switches to a permanent solution of 401ks...take a % of your "promised" total and move on. All you have to do is google any underfunded pension plan that went belly up to see what's coming down the road.

[Jon998877]

Originally Posted by dtcbnd03

Pensioners need to stop thinking they're gonna get 100% of their money. It's not gonna happen. Unfortunately you've signed up for a ponzi scheme. You've been swindled. It sucks but cut your losses....vote in union leadership that switches to a permanent solution of 401ks...take a % of your "promised" total and move on. All you have to do is google any underfunded pension plan that went belly up to see what's coming down the road.

I have looked for government pension plans that went bell up even though guaranteed by a state constitution and I couldn't find any, can you help me out?

[MSchemist80]

Both Detroit and Stockton, CA went bankrupt.

[Jon998877]

Originally Posted by MSchemist80

Both Detroit and Stockton, CA went bankrupt.

In Detroit the agreement was that pensions would be cut by 4.5%, which would cost the average teacher in TRS about $3K a year.. if that was the agreement here in Illinois, I would be ok with that as a teacher.. of course my first choice would be to simply have us all work longer, thus paying in longer and receiving benefits for fewer years..

[Kmanshouse]

Originally Posted by Jon998877

All that said, if the state would have held up their end of the bargain and funded the pensions at the level they were suppose to, the current problem would be a LOT less severe. But instead the state wanted to create entitlement programs and waste endless billions of dollars in other areas and now everyone wants the teachers to suffer because of it? Forget cutting pension promises. lets instead start cutting welfare programs and diverting that money into the pension programs until they are caught up

Sort of. See, by using higher interest rate assumptions, the "minimum required contribution" or even the recommended one is deflated. The contribution would be calculated as X, state contributes X. They think they are doing what they should be doing. But really, using more updated assumptions, the contribution should have been 2X or 3X. Or maybe even 10X.

Not taking mortality or other factors into account, just interest, see below exercise.

Pension promise is $1,000 at age 65. Person is 40 years old today. Assuming 8% means that if you deposited $146 today, it would grow to $1,000 at age 65, and you are good.

Assuming 5% interest, and now you need to deposit $295 today in order to get $1,000 by age 65.

State is told to contribute $146 based on the outdated assumption. State is relieved they don't "have to" pay $295, so they put in $146 and say they "made their contributions".