CERF Actuary Says Employees Will Receive 100% of Benefits
by Fred Munzenmaier, CERF’s Actuary
The County Employees’ Retirement Fund (CERF) called to my attention the Missouri Budget Watch article “County Retirees Only Entitled to 62% of Pension Benefits.” A CERF plan member from Cape Girardeau saw the article and called it to CERF’s attention. CERF had no “heads up” from the author prior to publication of the article.
The article was written by Sheila Weinberg, CEO and Founder of the Institute for Truth in Accounting. Sheila and CERF were separate presenters at the October 20 [the article says October 27] hearing of the Governmental Accounting Standards Board (GASB) on their Exposure Draft proposed for reporting and accounting for public sector pension plans.
My initial reaction to Mrs. Weinberg’s article was a human one – a little offended. To remain objective, I thought that a call to Mrs. Weinberg to better understand her point of view would be constructive. CERF approved my making the call.
After the call, I understand where she is coming from. But, she is just wrong. I totally disagree and tried to persuade her as such. I do not know if I succeeded. I do thank Mrs. Weinberg for giving me this opportunity to tell you the awesome, factual story of CERF.
CERF was started from scratch in 1994, which is a relatively young plan as public sector plans go. Of course being a new plan, CERF had zero assets at the time, yet CERF had some immediate retirees. Under Mrs. Weinberg’s theory, these retirees should have been paid zero. But these retirees started receiving full pensions as intended and have been receiving 100% of their pensions ever since. Pensions were paid and new retirees continue to be paid from CERF’s substantial positive cash flow.
I came on the scene in 1999, and I have been the actuary since then. I must say that CERF is as well managed as any plan that I have encountered in my 40 years as a pension actuary.
Specifically, and among other things:
· They have a well-defined investment policy and they meticulously supervise investment managers and their results.
· Their administrative staff is dedicated, well-educated, and well-managed.
· All work is audited meticulously.
· On the actuarial front:
– They do two actuarial valuations a year, not just one, or one every other year as with
other plans.
–They do sophisticated 40-year projections of the funded status of the plan, just like Social Security does on a national basis. Fortunately, CERF’s projection numbers look a lot better than the Social Security numbers.
– They perform an actuarial gain and loss analysis to monitor the actuarial assumptions compared to actual plan experience.
–Every 5 years they perform an actuarial experience study to update the actuarial assumptions.
· They employ the largest, most prominent law firm in the State of Missouri to guide them in all aspects of the plan.
· The Board of Directors works persistently to preserve a balance between the level of benefits and the funded status of the plan. The Board realizes that employees contribute a significant portion of their compensation to support this plan and benefits must be commensurate with those contributions but without endangering the security of the plan.
CERF is doing everything right. Based on all of this I can say that with a high degree of probability all CERF participants will receive 100% of their benefits – not 62% as the article says.
100% is the assumption that I am and CERF is operating under.
That brings me to why we were at the GASB meeting in the first place. Mrs. Weinberg’s article is sub headed “County Liability for Pension Benefits is Nil.” Well, there are liabilities and there are liabilities. There are legal liabilities, there are accounting liabilities, and there are actuarial liabilities.
Legal liabilities usually translate into accounting liabilities. But actuarial liabilities often translate into neither. Actuarial liabilities just provide a guidepost for the funding of a plan. But GASB wishes to impose upon the counties an actuarial liability as if it were a legal and accounting liability.
The Missouri Statutes cited in Mrs. Weinberg’s article relate to the remote possibility that CERF would have to terminate the plan. In that case under Missouri Statutes, the legal and accounting liability for the counties would be zero – just limited to benefits that could be provided by then existing plan assets. The CERF founders knew that this limiting provision had to be in the statutes or there would be no chance of CERF being approved by the legislature back in 1994.
Because of skilled management since then, no participant has received less than 100% and we expect with a high degree of probability than no one, present or future, will get less than 100%.
Nevertheless, the GASB wishes to impose upon the counties an actuarial liability as if it were an accounting liability. CERF is managing and funding for its actuarial liability. But to impose the actuarial liability on individual counties as if it were an accounting liability would cripple county
finances and hurt employees in another way – fewer jobs. We were at the GASB hearing to impress upon them that the current accounting standard has worked well for the last 14 years since instituted in 1998 and GASB should not change, especially under a plan with CERF’s statutory provisions.
In a nutshell, we were telling them that “The Chief cause of problems is solutions.” – Eric Sevareid.
