Friday, July 23, 2010

Why the increase to Santa Barbara taxpayers by removing "excess returns' and increasing the unfunded Liabilty to the pension plan?

The taking of "excess returns' adds to the unfunded liability of (SBCERS Pension Fund)

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Date: 2010-07-23, 3:22PM PDT

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Since I left off using headlines during my last posting I thought I
> would share the two that most caught my eye this week.
>
>
>
> "The California State Teachers' Retirement System investment portfolio
> earned 12.3 percent return at the end of the 2009-10 fiscal year June
> 30.
>
> The portfolio's market value ended the year at $129.8 billion.
>
> Read more: CalSTRS gains 12.3 percent in fiscal 2010 - Los Angeles
> Business from biz journals "
>
> "CalPERS reports 11.4% gain on investments
>
> The California pension fund's performance improves but falls short of
> its goal for the year.
>
> July 16, 2010|By Marc Lifsher, Los Angeles Times
>
> Reporting from Sacramento -
>
> Partly clawing back from steep losses during the recession, the
> country's largest government pension fund said in a preliminary report
> Thursday that it gained 11.4% on its investments for its fiscal year."
>
> Why than has our own Santa Barbara County Pension Fund not gone public
> yet with there investment earned results? You might also want to visit
> the web site of a Trustee for our Santa Barbara County Pension fund,
> the location is at the bottom of this posting. Mr. Kendig has taken
> his Fiduciary obligation very seriously unlike our County Auditor
> Robert Geis. Now just below is a quick note from a presentation made
> to our Pension fund board in regards to duty and responsibility's.
> That will be followed by my further break down of Santa Barbara County
> Auditors "White Paper 'document and what appears to be a contradiction
> of responsibility. In my opinion the passage in regards to Funding
> Retiree Health and Other Benefit Costs shows a grave dereliction of
> duty. The passage clearly shows that by the removing of "excess
> earnings' you directly affect the unfunded liability of the pension
> fund in a negative way. In the example below the removing of the
> "excess funds" created an additional 5 million dollar cost to the
> 400,000 Santa Barbara county residents and yet it was still done. This
> does not follow the fiduciary responsibility of those in charge of
> such decisions. Since when is 7400 greater than 400,000 residents of
> this county? This move was done for a supplemental payment to those
> covered by the pension in the amount not to exceed 20 dollars a month
> are you kidding me? Please take into account the 'excess returns " had
> been made with the same tax payers dollars that must now fund an
> additional 5 million dollars. So we form a Pension fund, exceeded
> expectations in earnings, have the excess removed. So that we can than
> increase our funding responsibilities further to the same fund? Are we
> really that stuck on stupid that no one has realized this until now?
>
>
>
> Oh wait it gets better. If you read the passages after that in
> regards to the total Pension fund value there are even more
> contradictions. "Losses on investment returns of $464 million" is used
> in one section of the passage. Does that mean unrealized gains based
> on the 8.16 expectation of return on pension fund investments? If so
> than that really has no physical effect on the fund value. That would
> be like saying, my invisible friend never showed up for dinner but you
> can still charge me for his invisible plate. The other phrase that
> concerns me is; "The next year the fund lost an additional $322
> million" , now in my mind that reflects a subtraction of physical
> assets and is not invisible. So please review those passages as well
> and form your own opinion. It is hard for me to believe that Santa
> Barbara County Auditor Robert Geis was clarifying anything,
> camouflaging Is more like it. I have much more to share on Sunday. As
> always if you find value in my posting please share it with others.
> Please visit my blog @
> www.santabarbaracriminalcourtcorruption.blogspot.com
>
>
>
>
>
>
>
>
>
>
>
> SYSTEM PRESENTERS
>
> Harvey Leiderman, Reed Smith
>
> Fiduciary Counsel
>
> Fiduciary
>
> Responsibility
>
> An Independent Board Created by the
>
> State Constitution and by Statute
>
> ?? Article XVI, sec. 17 of the Constitution:
>
>
>
> Primary duty - to participants and beneficiaries
>
> Subordinate duty - to minimize employer contributions
>
> Avoid "negotiating" deals over benefits and
>
> Contributions
>
>
>
> "Funding Retiree Health and Other Benefit Costs"
>
> "Currently, retirees receive health and other benefits outside of the
> basic pension benefit. These other benefits are not officially or
> explicitly paid for through the normal method described above. The
> method used to pay for these other benefits is a complicated process
> that takes a portion (50%) of the investment earnings above the
> expected rate of return ("excess earnings") and sets it aside for
> these other benefits. This is not an actuarially sound practice
> because "excess earnings" are not equivalent to surplus earnings.
> Effectively, this practice diverts assets from the basic pension and
> increases the unfunded liability. The table below shows the fiscal
> impact of this practice on the unfunded liability. With the current
> practice, the unfunded liability is $257 million. If the practice was
> not followed, all assets would be available for the basic pension
> benefit and there is no additional liability outside of the basic
> pension benefit, the unfunded liability would be reduced by $138
> million to $119 million. Each time there is a distribution of "excess
> earnings," the unfunded liability will increase. For example, at
> 6/30/06, "excess earnings" totaled $86 million. If these are
> distributed, 50% or $43 million will go towards increasing the retiree
> health or other benefits and the unfunded liability will increase by
> $43 million to $300 million. The associated County UAAL rate will then
> increase from 9.29% to 11.31% to pay for the increase in the unfunded
> liability increasing County costs by an additional $5 million
> annually. In addition, the plan sponsor does not contribute the
> additional cost of the retiree health benefit on an annual basis
> creating additional unfunded liabilities."
>
>
>
> The above explanation is just a portion from Santa Barbara County
> Auditor Robert Geis's document below;
>
>
>
> http://www.countyofsb.org/auditor/Publications/CountyRetirementCosts.pdf
>
> Page 1 of 7
>
> County of Santa Barbara
>
> Office of the Auditor-Controller
>
> County Retirement Costs: White Paper by Robert W. Geis, CPA
>
> (Through June, 30, 2006)
>
>
>
> "Case in point: In 1999 the County was 100% funded per the actuarial
> value method and 117% funded ($180 million surplus) per the market
> value method. In our opinion, this was just short of excellent. At
> that point decision makers decided to improve both active member and
> retired member benefits using surplus earnings to pay the benefits (a
> part of the $180 million surplus). The cost of these benefits created
> new liabilities for past service estimated by the actuaries to cost
> $87 million. During the implementation of the new benefits the market
> lost $142 million by 12/31/00. Therefore, the surplus to pay the
> benefits was wiped out and new liabilities were created that had not
> been paid for over time."
>
>
>
> ." The funding policy is driven by a complex array of actuarial
> science, federal tax laws, state legislative code and governmental
> accounting policies. Losses on investment returns of $464 million
> between December 31, 1999 and December 31, 2002 had a dominant impact
> on the fund."
>
>
>
> "During the implementation of the new benefits the market lost $142
> million by 12/31/00. Therefore, the surplus to pay the benefits was
> wiped out and new liabilities were created that had not been paid for
> over time. The next year the fund lost an additional $322 million. The
> market value unfunded liability went from a surplus of $180 million to
> a deficit of $284 million."
>
>
>
>
>
>
>
> Donald Kendig's
>
> SBCERS Trustee web site
>
> http://sbcers-trustee.com/2009BoardRoundup.aspx
>
> Mr. Kendig has made a point to state that the link below is most helpful!
>
> "December Portfolio Status provided but not discussed during the
> meeting. A number of new reports are being provided. This one
> appears most helpful. @
> http://sbcers-trustee.com/Documents/2009-01-29-Day2-11-INV-CFinancialSummaryPerformanceVsBenchmark.pdf