Monday, February 28, 2011

Quote of the day

“The most powerful force in the universe is compound interest”

KT explains why this quote generally attributed to Albert Einstein and the concept therein is lost on some people in Wisconsin, here.

Totally related: Back around 1980, Johnny Carson, in his monologue dropped this gem: "Scientists have developed a powerful new weapon that kills people but leaves buildings standing - it's called the 17% interest rate".

Pension actuarians... not laughing.


Harrison said...

I thought it was stupidity?

K T Cat said...

Thanks for the link. I'm optimistic that in the end, Americans will decide to face their challenges instead of running away from them as the Greeks have done.

SarahB said...

Classic. Sharing...

steve said...

The Wisconsin pension is one of 4 that are fully funded.

It is generally recommended that pensions be 80% funded. That appears to be some actuarial thing.


Dean said...

Steve, I was only able to check out a portion of the link but the first question that came to mind is the time table or projections they are considering for "fully funded".

To wit, the chart on page 4 shows California being in an alleged safe zone at 84.1-91.5% funded. While this may be true currently, the problem is (and I don't have the specific numbers in front of me) is the projected short fall because of the overly-optimistic returns that were negotiated into the pension plans back in the late 90s.

Saying we here in California are safe just doesn't pass the sniff test.

steve said...

It is just a snapshot in time, so future projections do matter. What I think it helps to point out is that the problem is much broader than pensions, for California. For Wisconsin, the current foal point, pensions are an even smaller problem.


Dean said...

Steve, I was able to check out more of the Pew report (thanks for sending - lots of good info).

I'm running short on time but what jumped out at me was that the latest numbers they have available are from June of '08, nearly 3 years ago, before the recession really had a chance to wallop these pension plans. Given that, I'm not sure what that says about the current soundness of the state plans.

From the report:

"In the vast majority of states, the effect of significant investment losses from 2008 and early 2009 have not yet been fully factored into contribution rates. But given the extent of the losses, it is likely that even states that have funded their pension plans well in the past will face large increases in annual payments."

Also, depending upon the state, how does the expected rate of return that has been negotiated into the labor contracts factor in?

From page 22:

"Montana provides a good example of what states are up against in trying to recover using investment returns alone. The investment loss for the state’s Public Employees’ System was 20.7 percent in fiscal year 2009 and 4.9 percent in fiscal year 2008, said Carroll South, executive director of the Montana Board of Investments. But because the pension fund also did not make its expected 8 percent rate of return, the shortfall is really almost 28.7 percent and almost 12.9 percent for each of those fiscal years respectively.

The almost unavoidable upcoming increases in employer contributions could not come at a worse time. These actuarial demands have hit just as states’ revenues have been squeezed by the recession."

Things don't look pretty.

steve said...

Here is another interesting article pertinent to California. I had always assumed you guys overspent on everything. According to this source, your per cpaita expenditures on education are about average for a US state. Where you go nuts is in corrections, police and fire and medical care. those are as percentages, so in absolute dollars, I would presume health care is the big loser. (This site was referred to me by someone I dont know.)


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