Friday, February 15, 2013

Where's My Pension Report?

Sometimes being late is just that, being late. Sometimes it's an indication a problem exists. The release of the Michigan Public School Employees Retirement System (MPSERS) financial statement known as the CAFR (Comprehensive Annual Financial Report) is late. The system's year end is September 30. Typically the report is issued in late January. It is now late February and still no report.

Make no mistake, the fund has been hit hard by the economic recession. Returns have been bad, and future obligations have grown. Yet the "health" of the pension is not determined by an outside agency. The definition of health rests entirely within the hands of the retirement board (pg 3, items 11 &12) and the director of the Office of Retirement Services. That's the same setup which helped produce the financial meltdown of the mortgage market - the banks hired the rating companies to rate the debt, but the rating companies only provided their "opinion" based on the input they received from the banks.

Maybe the retirement board is not sure how much longer they can sustain unrealistic assumptions on investment returns, or how long they can hide the true value of current assets behind the curtain of "smoothing." Smoothing is an interesting "tool" employed by the board. The board allows itself to "report" 2011 assets of $43.3 billion while really having only $36.7 billion. This "trick" is allowed by accounting standards, but that does not make it right. No less than Warren Buffett has said that "pension accounting encourages cheating."

The delay in releasing cannot mask the massive and growing burden this program represents -- my only wish is that the report will someday accurately represent the facts without hiding behind accounting tricks. Maybe someone is finally pushing for true clarity, we'll see....

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