But you’re assuming that the actuaries don’t understand the issues with the assumed rate of return. They DO understand, and so does everyone else involved. [/quote]
The actuaries completely understand the issue. As do most of the pension trustees. I never claimed otherwise. But you’re ignoring the “kick-the-can-down-the-road” element of this. As I explained, the union reps want to keep the assumed rate of return high for the reasons I mentioned. The politicians want to keep the rate high for a completely different reason: they don’t want to be blamed for, in effect, raising taxes by voting in favor of using a lower rate. In most cases, once you eliminate the union reps, the politicians, and the folks who one day want to run for some office… you don’t have many trustees left. Ultimately, however, it’s the taxpayer that will foot the bill for this circle jerk… eventually.
[quote=CA renter]
You’re claiming that nothing will be done about the shortfalls until the last second; I’m claiming that they will increase contribution rates (and lower assumed rate of return — as they’ve done at least twice in the past couple of years) before that day arrives. I’m saying that the “guarantee” will be on the contribution side, and you’re saying it will be on the benefit side. We won’t really know until we get there.[/quote]
No, I didn’t say that nothing would be done “until the last second.” You put those words into my mouth. What’s happening is that the reality is VERY slowly seeping into the rate of return assumptions. But it will be years before the rate is anything close to justifiable. I’d say that 6%-6.5% is the VERY highest rate that’s not laughable. Well, to use SD County as an example, every 10 bps decline in the assumed rate of return requires ~8-10 million more in annual contributions from the taxpayers (“employer,” in your parlance). So, given the internal trustee dynamics, it’s going to be quite some time before that assumed rate of return gets to a reasonable level. And all the while, the ultimate bill to the taxpayers, as compared to the employees, will be rising.
[quote=CA renter]
Also, regarding the return assumptions, the pension funds have certainly shown that actual historical return rates are very much in line with, or higher than, assumed return rates. I’m sure you and I both recognize that we are in a different investment environment than what we’ve had over the past 50+ years, but their numbers are reasonable based on historical returns. [/quote]
Yes, while you can eat historical returns today, future meals require future returns… which are going to be much lower than historical returns.
[quote=CA renter]
Even so, they have been steadily reducing their return assumptions, and I am pretty confident that they are willing to do so even more going forward…
[/quote]
Spoken like someone who’s never served on a pension board. You’re smoking crack. Lowering assumed return assumptions is like pulling teeth – everyone involved does so after much kicking and screaming. Basically, the trustees have to be shown that their assumptions are completely indefensible before they act on this issue.
[quote=CA renter]
As for not having a choice WRT paying taxes, I’ve made the point before that there are many cities and states (or countries) that have much lower taxes. If one felt strongly enough about it, they could move to one of these places to avoid paying certain taxes (or all taxes, if one is so inclined). [/quote]
No doubt. Wasn’t my point. My point was that whatever taxes are levied by the municipality you live in are not optional. Going to WalMart is.
