{"id":11308,"date":"2016-10-27T09:52:09","date_gmt":"2016-10-27T14:52:09","guid":{"rendered":"http:\/\/www.kevinbryant.com\/?p=11308"},"modified":"2016-10-27T09:52:09","modified_gmt":"2016-10-27T14:52:09","slug":"comptroller-general-eckstroms-remarks-on-pension-crisis","status":"publish","type":"post","link":"https:\/\/www.kevinbryant.com\/kbarchive\/comptroller-general-eckstroms-remarks-on-pension-crisis\/","title":{"rendered":"Comptroller General Eckstrom’s remarks on pension crisis"},"content":{"rendered":"

Tuesday, September 27, 2016 10:00AM
\nJoint Committee on Pension Systems Review
\nRemarks from the Comptroller General: CHRMN: We\u2019re going to open it up with the Comptroller General. Thank you for being here.\u00a0\u00a0 ECKSTROM: Thank you very much. I can\u2019t think of an issue that is more urgently in need of attention and resolution. Now, I am going to be totally candid with you all this morning. If I say anything that offends any of you, I apologize for that upfront, that\u2019s not my intention. I regard each of you as my friends. But I do think that we need to be very frank about the state of the retirement system and how we got to where we are. Our roles differ a pretty good bit and because of that I think that we can look at similar events and reach vastly different conclusions\u2010\u2010that\u2019s only natural. A hotel owner might look at a gathering rain storm and frown because it\u2019s going to impact his occupancy, while the groundskeeper can look at that same rain shower and smile because of the impact it will have on the grounds and the plants that he\u2019s responsible for. Two events, two people, two different responsibilities, two entirely different responses. That\u2019s natural. You may ask, \u201cWhat does this young whipper\u2010snapper know about the retirement system, about actuarial accounting?\u201d I want to assure you that I\u2019m not young; in fact, I attended my 50th high school reunion this summer. People had changed a whole lot in 50 years. Just think about how people can change\u2010\u2010I had hair 50 years ago, believe it or not. Representative Stringer probably did, too\u2010\u2010except, he wasn\u2019t born then, but he would have. I ran into one of my best friends in high school and I couldn\u2019t believe it. This guy was the jock, he lettered in three sports\u2010\u2010\u00a0agile, trim, fit, and healthy, and the girl cheerleaders swooned over him. He was \u201cthe guy.\u201d 50 years later, he shows up and I hardly recognize the guy. He had moved on, moved out West and married someone he met in school, they moved west. I hadn\u2019t seen this guy in decades. He had gained 100 pounds and was having these serious health problems because of that. I asked him, \u201cHow could that have happened?\u201d You know what he told me? He said, \u201cIt all happened so slowly, I didn\u2019t even realize it. I finally came\u2010to when my doctor diagnosed some really serious health problems. But it all happened in bits\u2010\u2010a pound here, and a pound there. There was never a year when I gained a lot of weight. It was just a problem that occurred incrementally over time.\u201d<\/p>\n

I wonder if you all recognize that that is kind of the situation we have on our hands with the retirement system. You all have, in the material I provided, a table\u2010\u2010and I know that the table is very, very busy\u2010\u2010it goes back to 1997 and comes forward to 2015. We\u2019re waiting for the 2016 actuarial evaluations. But it shows that in 1997 we were in pretty good shape. In 1999 in fact the state had an unfunded liability of about $200M. The actuaries were projecting based on contribution rates it would take about 2 years to liquidate that unfunded liability. The charts that follow that table, the first one shows that the unfunded liability grew dramatically, and those are the green columns. It grew from almost nothing in 1999 to about $16.8B in 2015, and that our amortization period for liquidating that liability has, well our funding percentage, rather, the percentage that we\u2019ve funded into the system to cover the liability has dropped from nearly 100% in 1999 to just over 60% today; meaning, that of the dollars that are supposed to be there, or, for every $10 that we should have in the system, we have only $6, [meaning] $4 of the $10 are missing and need to be replaced. They\u2019re missing because they were never put in. How could that be? Well, the next chart shows essentially the same thing. It shows the percentage that the plan is funded but compares it to the liability amortization period and it shows that it\u2019ll take us 30 years to amortize the existing liability, if we\u2019re lucky. We\u2019re right at that point where the actuaries tell us, and the accounting standards tell us, our plan is actuarially unsound if we breach that 30 year amortization period. And we\u2019ve been there essentially since about 2004. The next slide shows some of the factors that have contributed to the system\u2019s underfunding, some of the factors that have built up this unfunded actuarially\u2010determined liability. Now that\u2019s a really fancy term, \u201cunfunded actuarially accrued liability.\u201d That\u2019s a term that we don\u2019t use in everyday life so I\u2019ll give you a term or two to substitute for it.\u00a0\u00a0You could replace that term \u201cunfunded actuarially accrued liability\u201d with the term \u201cdeficit.\u201d Or if you have any questions over what a deficit is, you can use the four letter term \u201cdebt.\u201d You might say \u201cBut that\u2019s the retirement system\u2019s debt.\u201d Not really, that\u2019s state debt. That\u2019s debt that the state has an obligation to make up. It\u2019s debt that the state has an obligation to liquidate. It is money that the state has an obligation to pay into the system, has to put into the plan. Now you might ask, \u201cWhat\u2019s the problem here?\u201d Let me tell you upfront not to jump to the easy conclusion that the RSIC [Retirement System Investment Commission] is the cause of all this problem. That\u2019s an easy horse to kick. It\u2019s an easy entity to point the finger of blame at. Now some of that blame might be justified, but to look at the RSIC as the primary cause of the growth in the unfunded liability just does not square with the facts. There are many other contributors, many other factors that have created that debt, which is the state\u2019s debt.<\/p>\n

One of them is the way we oversee, the way we assign responsibility, for the retirement system. It\u2019s one of the most fragmented, patchwork systems of oversight conceivable. If you wanted to design a less effective system of oversight and responsibility, you\u2019d have to try pretty hard. In fact, I don\u2019t know how you could do it. The retirement system itself has a piece of responsibility. PEBA has a piece of responsibility. The Fiscal Accountability Authority, the authority that I\u2019m on, has a piece of that responsibility. And you all in the General Assembly have a piece of that responsibility. No one has total responsibility, no one has total access, no one has the ability to make decisions overall to provide for the absolute needs of the retirement system because we have fragmented this oversight and responsibility. This [assigned oversight] has changed over the years. The Budget and Control Board, the predecessor of the Fiscal Accountability Authority, used to have the ability to control employer contributions, while you all in the General Assembly\u00a0retained the authority back then to control employee contributions. So there was this bifurcated responsibility back then that didn\u2019t work out all that well. But there have been other changes, especially when PEBA was created by the General Assembly and given the opportunity to set contribution rates [for both employers and employees]. But the General Assembly retained the responsibility to control one of the most critical estimates used in projecting the liabilities of the retirement system\u2010\u2010\u00a0and that is the critical estimate for the discount rate used to calculate the present value of the future liabilities of the plan. It seems to me that the intention was very clear that the General Assembly did not want others making decisions that could impact annual funding of the retirement plan. But you all have artificially held high the discount rate, the rate that\u2019s used in calculating the liability, and by doing so are understating the liability. I know that\u2019s not been the intention of any of you, but I call it almost \u201cbenign neglect\u201d to tolerate that. Those of you who are interested in solving this problem will never get it solved without giving up that responsibility [to PEBA]; because, like the hotelier and the groundskeeper, you all [as the plan\u2019s funders] have a very different outlook [than the plan\u2019s primary overseer] on retirement system decisions. You all are looking at the retirement system on a year\u2010to\u2010year basis. You\u2019re making decisions in order to help craft an annual budget and I applaud you for that. I know that that\u2019s something you\u2019ve got to do, to pass an annual balanced budget for the state. But in connection with that, you\u2019ve limited the funding needed by the retirement system which, by the way, has provided you all with the opportunity to free\u2010up a little funding for projects back in your districts. That\u2019s always required a tradeoff with the retirement system\u2019s funding needs. Really that\u2019s what the supplemental appropriation bill is all about, giving so many of you an opportunity to fund projects in your districts. When, in my mind, the state has this very high priority funding need that\u2019s been largely ignored because it\u2019s been suppressed by the differing views, the annual view as opposed to the long term view. In the long term view that I take as a member of the Fiscal Accountability Authority \u2013 looking at the long term health of the plan \u2013 it is abundantly clear that the long term health of the plan is in peril, and I don\u2019t know how in looking at the growth of the unfunded liability anyone could escape the conclusion that there\u2019s a trajectory that\u2019s been set that\u2019s damaging the plan, and that the state has really missed the mark in operating it. I know some of you here today have been deniers of that by saying that it\u2019s not a problem. I\u2019m very glad we\u2019re now all on the same page and that we all admit that yes, there is a problem. And the question now is \u201cHow are we going to fix it?\u201d We\u2019ve willingly received information, and used information, that just doesn\u2019t seem that reasonable. We\u2019ve received it from our experts. I think that there are times that we\u2019ve driven experts to give us information that\u2019s favorable and user\u2010friendly to keep the retirement system debt, the unfunded liability, down to a lower level. I\u2019ve seen it happen, I\u2019ve seen the actuaries provide information which results in not what the state wants, and the actuaries reconsider and come back with more favorable information. This \u201cgetting by\u201d approach that we\u2019ve taken has gotten us to where we are today. How do we get out of it? I don\u2019t think that we ever will [get out of it] without addressing the oversight problem, without addressing the \u201cwho controls what\u201d problem. I think the state has to provide for competent oversight, and give that competent oversight the [necessary] authority to be able to hold it accountable for the system. We\u2019ve had people who have been responsible [to one extent or another], but I think that there\u2019s too much blame to go around to start pointing fingers at any one party, because there\u2019s been a lot of complicity in the very big problem that we have on our hands today. Just think about, years and years from now, when you retire, your grandchildren, maybe your neighbors, asking you, \u201cWhat did you do to fix the retirement system? We heard the retirement system used to be in trouble, tell us what you did to fix it.\u201d What are you going to be able to tell them? What will you be able to say? We now realize it has to be fixed. The question is \u201cWhen do we want to fix it, and who will?\u201d You all control that part. Thanks for letting me speak today. We\u2019re all in this together.<\/p>\n","protected":false},"excerpt":{"rendered":"

Tuesday, September 27, 2016 10:00AM Joint Committee on Pension Systems Review Remarks from the Comptroller General: CHRMN: We\u2019re going to open it up with the Comptroller General. Thank you for being here.\u00a0\u00a0 ECKSTROM: Thank you very much. I can\u2019t think of an issue that is more urgently in need of attention and resolution. Now, I […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":{"0":"post-11308","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-uncategorized","7":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p2gEQ0-2Wo","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/posts\/11308","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/comments?post=11308"}],"version-history":[{"count":1,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/posts\/11308\/revisions"}],"predecessor-version":[{"id":11309,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/posts\/11308\/revisions\/11309"}],"wp:attachment":[{"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/media?parent=11308"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/categories?post=11308"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kevinbryant.com\/kbarchive\/wp-json\/wp\/v2\/tags?post=11308"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}