Comprehensive Annual Financial Reports
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Government says their Pensions are 1 trillion Short?
Well, looks like it may be time for an education lesson!
by Walter Burien - CAFR1.com
If you said you were $40 short on your monthly food budget, what is the first question that comes to mind?
ANS: What is your monthly food budget..
If your food budget was $400 you are short 10%, if $80 then you are short 50%.. Big difference between the two.
This media "promotion" of 1 trillion dollars short has two big pieces of the picture intentionally omitted.
1. What is the "collective" totals under management that they say they are 1 trillion dollars short on?
2. What is the actuarial projection being used whereby they say they are 1 trillion dollars short?
EXAMPLE: If you wanted $100,000 a year at retirement, how much money do you need to put to the side that pays you $100,000 of investment return twenty years from now?
The key factor here is the projected rate of return you anticipate getting from your fund balance. Lets say we use an actuarial projection of a 10% rate of return. That means we must have $1,000,000 (1 million dollars) put aside and at a 10% annual return that gives us our $100,000 a year. But if we projected getting a 5% rate of return that would now make the figure $2,000,000 (2 million dollars). Let's take it one step further. Let's use an actuarial projection of 2.5%, that means we would need $4,000,000 (4 million dollars)
Well, there is a big difference between 1 million dollars and 4 million dollars.
So, under the example above if we at the start used a projection of a 2.5% rate-of-return, had built our balance up with contributions and investment return over ten years to $2,000,000 (2 million dollars) we would be 50% short on our "projected" need to meet our retirement using a 2.5% projected rate of return.
Well here's the kicker.. if "in reality" we were getting a 10% rate of return and adjusted our "actuarial projection" accordingly, we would be 100% over funded..... Get it??? Only $1,000,000 (1 million dollars) needed.
So the ONLY issue when government says they are 1 trillion dollars short is: What are the actuarial projections being used vs . THE REAL RATE of return being accomplished combined with their standing fund balance?
It is VERY important to look at 1, 3, 5, 10, 15, 20 years of performance results to establish a correct actuarial projection that should be used per "projected" rate of return. Keep in mind the local governments own those funds NOT the employees. The employees bought a ticket to ride under contract. They get a set amount at retirement not a penny more. If performance on the fund was up by two or three times what was needed the employees do not get 1c extra, they just have their ticket to ride under specific terms from point "A" to point "B".
The actuarial projections used by the local governments are designed to build up a "power base" for those local governments. With hundreds of billions of dollars under management in each state that is a lot of grease to grease the skids for Corporate acquisitions; real-estate development; massive loans granted; and bond offerings backed. Here the incentive for the local governments is to fudge the actuarial projections used to build up a much bigger power base. Additionally in doing so they give the impression of being short and thus get more money from the employee and take more tax revenue from the public...
On the State level their are many different local government retirement funds. Usually there will be one State retirement fund (usually the largest) and many other local government retirement funds. They are separate from each other but many network together under specialty "private" associations that in consult direct them all as a monopoly of no equal.
As an example from one state New Jersey, here are a few of the primary State funds that are active or closed but still under management. Many local governments from within the state may or may not be participating in these State funds. Other local governments in the state may be managing their own on the local level. When a local government says they are short, again look closely at the actuarial projections used vs. the real rate of returns accomplished over several years. As a rule government employees are just told the actuarial projection used, they are NOT told the real rate of return accomplished... The employees may be told 7% when 16% or 18% may be the reality... as was the case in Washington, Oregon, and Arizona from 1990 to 1999.
Alternate Benefit Program ("ABP") <http://www.state.nj.us/treasury/pensions/abp1.shtml>
Alternate Contribution Tax Sheltered Program ("ACTS") <http://www.state.nj.us/treasury/pensions/acts.shtml>
Central Pension Fund ("CPF") <http://www.state.nj.us/treasury/pensions/closed.shtml#CPF>
Consolidated Police and Firemen's Pension Fund ("CPFPF") <http://www.state.nj.us/treasury/pensions/closed.shtml#CPFPF>
Judicial Retirement System ("JRS") <http://www.state.nj.us/treasury/pensions/jrs1.shtml>
New Jersey Pensions and Benefits Home Page <http://www.state.nj.us/treasury/pensions/index.html>
New Jersey Treasury, Division of Pension & Benefit <http://www.state.nj.us/treasury/pensions/>
Police and Firemen's Retirement System ("PFRS") <http://www.state.nj.us/treasury/pensions/pfrs1.shtml>
Prison Officers' Pension Fund ("POPF") <http://www.state.nj.us/treasury/pensions/closed.shtml#POPF>
Public Employees' Retirement System ("PERS") <http://www.state.nj.us/treasury/pensions/pers1.shtml>
State Employees' Deferred Compensation Plan ("NJSEDCP") <http://www.state.nj.us/treasury/pensions/fact32.htm>
State Employees' Tax Savings Program ("Tax $ave") <http://www.state.nj.us/treasury/pensions/taxsave.shtml>
State Police Retirement System ("SPRS") <http://www.state.nj.us/treasury/pensions/sprs1.shtml>
Supplemental Annuity Collective Trust ("SACT") <http://www.state.nj.us/treasury/pensions/fact35.htm>
Teachers' Pension and Annuity Fund ("TPAF") <http://www.state.nj.us/treasury/pensions/tpaf1.shtml>
Collective totals are massive. Most of the large State pension funds put out a CAFR (Comprehensive Annual Financial Report) for each of their pension funds listing the extensive holdings / investments of each fund.
And per issue #1 above, collective totals from all local and federal pension / retirement funds from the thousands of "separate" accounts, a good estimate of collective totals would be somewhere between 26 to 30 trillion dollars.
I note as these funds grew and were invested over the last eight decades they drove the economy by their capital investment. Did favoritism; fraud; and market manipulations occur as these funds grew? Oh yes, and some examples came to light (very few) and most went in and out with the tide as normal operations masked.
Bottom line? LOOK AND LEARN....,
Do not be played for an easy mark (this applies to both taxpayers AND government employees) The only way to see if you are getting played with false actuarial projections applied is to look first hand and see for yourself. You do NOT ask foxes if they are eating hens from the hen house. The only time you may get a straight answer there is if you are a fox yourself and are part of the pack.
I hope the above also gives you a better understanding of what the site TaxRetirement.com brought forward per the TRF (Tax Retirement Funds). Here the same type of massive investment funds can build with the sole objective being to phase out all taxation generated therefrom. Not lowering taxation but eliminating it.
This can be done utilizing the exact same fund managers currently handling government pensions to accomplish the purpose of tax elimination. If you catch the gist of this can you see how through capital reinvestments coming from the TRFs we then can have a long term"economic stimulus package" of no equal and no taxation? In fact government pensions can be included in with the TRFs and benefits paid therefrom... as well as eliminating all taxation..
Time for a "real" change..? Hopefully you get it and comprehend how this can happen..
The government syndicate needs to be brought under control and have a means of operation that directly benefits the people from the wealth amassed. The principle of operation of the TRFs does just that and allows for transparency and true good intent to come to play..
Walter Burien - CAFR1.com
P. O. Box 2112
Saint Johns, AZ 85936
Tel. (928) 445-3532
PS: Make the investment wealth of government directly benefit the people and taxation be gone! TRF now!
Any local government can be restructured to meet their annual budget needs "Without" taxes. TRF (Tax Retirement Funds <http://taxretirement.com/> ) paying for every City, County, State’s annual budgetary needs!
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CAFRs Comprehensive Annual Financial Reports (CAFR), state government