It’s a tricky business finding something about which to be optimistic when it comes to RI’s pension system for state employees and teachers, but Ted Nesi gives it a go:
It turns out Rhode Island’s actuaries weren’t optimistic enough when they predicted what would happen to the state pension system when lawmakers voted to overhaul it four years ago.
A WPRI.com review of actuarial valuations shows the shortfall in the pension fund for state employees has been smaller than originally predicted in every year since the law passed in November 2011.
Nesi’s further investigation puts some numbers to the general observations I made based on some old charts a week ago, so the data isn’t surprising, but the attempt of the treasurer’s spokesman to spin the numbers shouldn’t be passed along as credulously as the article does. Before we can say whether there’s reason for optimism, we’d have to know what the predictions from 2011 missed and whether that’s a good or bad thing, in the long run. (I don’t have the information to check, right now, nor the time to get it.)
As the chart in Nesi’s post shows, similarly to the ones to which I linked last week, the main difference was that the actuaries predicted an initial worsening of the pension fund’s “shortfall” (in Nesi’s terms) that didn’t occur. The market boost of continued quantitative easing over the past half-decade could have accounted for much of that, but Nesi notes that the “improvements came on both sides of the ledger,” meaning that the assets are higher than predicted (by about $40 million for state workers alone) while the liability is lower (by about $30 million for state workers). An inflated stock market could explain the first part, but not the second.
What would account for that? It may be that the actuaries expected a big exodus of late-career employees who would be immediately replaced, leading to the bump in liabilities, or something along those lines. As the following chart shows, there was no bump, and the valuations each year estimate steady numbers of employees. After a shift in 2010, the number of active members (current employees in the system) went down 186 by 2015, while the number of retirees went up steadily to 309. At the same time, there’s been a large increase in non-retirees defined as inactive, which simply means they didn’t contribute to their pensions in the last year of the quarter:
Looking closely, one can see that there is a mild inflection point in 2012, which came a year earlier than the actuaries expected, and one can see that reflected in the red “actual” columns in Nesi’s chart. But that’s a minor consideration. I simply don’t know how these results match up with the actuaries’ predictions for the pension reform, back in 2011, but if employees held off their retirements, then they may be more costly in the long run.
The most important observation, though, is that the projections called for a quick worsening of the “shortfall,” with improving prospects beginning in 2014, and we’re not seeing the improvement. The “shortfall” didn’t get as bad as predicted, but it isn’t improving as predicted, either. It’s worsening, and the window for optimistic notes is about to close.