America’s public pension funds, which manage trillions of dollars in retirement assets for millions of civil servants, are systematically deceiving taxpayers, the politicians, and municipal bond investors with elaborate accounting sleight-of-hand. The “official” numbers show that public pension funds are struggling; the accurate ones show that the looming fiscal time bomb is so explosive that it may be impossible to defuse.Mead points us to this piece from the New York Times, which has plenty to keep you awake:
When one of the tiniest pension funds imaginable — for Citrus Pest Control District No. 2, serving just six people in California — decided last year to convert itself to a 401(k) plan, it seemed like a no-brainer.So why would Calpers want half a million dollars?
After all, the little fund held far more money than it needed, according to its official numbers from California’s renowned public pension system, Calpers.
Except it really didn’t.
In fact, it was significantly underfunded. Suddenly Calpers began demanding a payment of more than half a million dollars.
“My board was somewhat shocked,” said Larry Houser, the general manager of the pest control district, whose workers tame the bugs and blights that threaten their corner of California citrus country. It is just a few miles down the road from Joshua Tree National Park.
It turns out that Calpers, which managed the little pension plan, keeps two sets of books: the officially stated numbers, and another set that reflects the “market value” of the pensions that people have earned. The second number is not publicly disclosed. And it typically paints a much more troubling picture, according to people who follow the money.So what's going on? Back to the Times:
The two competing ways of valuing a pension fund are often called the actuarial approach (which is geared toward helping employers plan stable annual budgets, as opposed to measuring assets and liabilities), and the market approach, which reflects more hard-nosed math.If you keep two sets of books in the private sector, it's usually called fraud. More, a lot more, at the link, including a few unpleasant surprises for the municipal bond market.
The market value of a pension reflects the full cost today of providing a steady, guaranteed income for life — and it’s large. Alarmingly large, in fact. This is one reason most states and cities don’t let the market numbers see the light of day.