By: Mark Glennon*
Reality is on its way. This month marks the date of full implementation of new accounting rules that will dramatically worsen reported pension problems.
Public pension critics have been screaming for years about phony pension numbers based on bullshit assumptions. The accounting profession took matters into its own hands. Going forward it will require government pension accounting comparable to what’s expected in the private sector. Specifically, the Governmental Accounting Standards Board has new rules known as GASB 67 and 68 that require, most notably, more realistic assumptions about how much pensions can expect to earn on their investments.
Prepare to be shocked by the consequences (if you haven’t been reading sites like this). According to one researcher writing today, for many badly underfunded pensions “the result will roughly quadruple the level of unfunded liabilities.” That researcher estimates that the unfunded liability for Chicago’s pensions could soar to $60 billion under the new rules. As of today, the City of Chicago’s site for pensioners says its unfunded pension liability is just $26.8 billion. Most media have been saying it’s only $18-20 billion.
You’ll be hearing lots more about this, but it will still take some time. The new standards apply to annual reports for fiscal years starting after this month, which won’t be reported until over a year from now. But the results will stun the deniers, and pensioners will be apoplectic. In the meantime, as you see pension problems reported, ask if those numbers are based on the old, phony methods.
By the way, the tagline on that City of Chicago web page for pensioners with the phony numbers is “Retirement Security; Honesty and Solutions.”
Yeah, right. Should be “No security, No honesty, No solutions.
*Mark Glennon is Managing Director of Ninths Street Advisors and founder of WirePoints.