Friday, July 06, 2012

WRS, Again: Not So "Perfect"

This time it's Moody's.

...The costs and transparency of state and local pensions may soon be on the rise in Wisconsin and across the nation, driven up by proposed changes from Moody’s Investors Service, the global credit rating agency.
The changes could mean that Wisconsin Retirement System is underfunded by nearly $30 billion – and that could ultimately drag on government bond ratings.

Among other adjustments, Moody’s proposes to standardize the public pension discount rate (or rate of return) at that of a high-grade, long-term corporate bond – currently yielding 5.5 percent. The changes will bring public pension reporting in line with the private sector, which uses the same corporate bond rate for valuing its liabilities....

WRS assumes 7.2%; the difference is worth ~$30 billion.

Thirty billion is not a huge number, given the time-span required to make up the difference.  And, of course, that 5.5 mark can move upward as AAA corporates move up.  But then, it could also move down.

1 comment:

Anonymous said...

Gee, let's have Dad29 try a third time to state the WRS is "overcompensated" and "underfunded". Let's have him link to a "news site" that refers to the same individual driving the narrative...Andrew Biggs.

Now, Moody is PROPOSING changes in the standardized discount rate. Hmmm, I wonder who is also touting that position? Andrew Biggs. Of course, if one focuses on that standard, then it would APPEAR there is a discrepancy in investment expectations, and that WRS is in trouble.

Depends which side you prefer to believe in. Biggs and his sidekick from the Heritage Foundation certainly have their own axe to grind, so their studies and proposals, like the one I cite, will be debated.

www.epi.org/publication/are_wisconsin_public_employees_over-compensated/

Regarding the "accounting problem" in the misleading title to the second link, the author even admits...

"If it seems like Biggs and Marchant are talking past each other, it’s because they appear to be. Biggs, and others, argue the discount rate should reflect future liabilities. Marchant argues the discount rate should reflect how assets are expected to perform.

Expectation, again, has been tricky business, lately.

“'That whole issue has been debated in our profession for quite some time and it’s still a matter of debate,” said Andy Peterson, a pension actuary at the Society of Actuaries. 'It’s not that one’s right and one’s wrong. It’s the PERSPECTIVE.'"

I think the non-partisan Pew Center would have made it specifically known, as well as other outlets over the years, regarding the "sloppy accounting practices" with evidence, which the article significantly lacks to lend support to this assertion.

Again, perhaps Walker should focus on getting the cops and firefighter unions to pay into their retirement like every other public union. That is the real travesty.