tag:blogger.com,1999:blog-2568941354104807757.post9055594138099340475..comments2023-10-05T09:07:24.225-04:00Comments on Investment Performance Guy: Dealing with the underfunding of pension fundsDave Spauldinghttp://www.blogger.com/profile/01777929408680234896noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2568941354104807757.post-47460577593391285592013-02-01T06:06:12.339-05:002013-02-01T06:06:12.339-05:00Norman, I'm not sure that any single municipal...Norman, I'm not sure that any single municipality had the right or ability to contribute to a state fund, that pools the monies. Perhaps there was a "work around." And, as they say, hindsight is "20/20." As a municipality, we have no input into the running of the plan; we have no consultant. As a mayor, you're obligated to be respectful of your citizenry; your taxpayers; essentially, your clients. As for the reason(s) the fund went underfunded, my guess is that many such plans, the subprime mortgage crisis was the major cause. Did that mean the fund was not in the right instruments? I can't say, as I was not nor am not privy to these details. Dave Spauldinghttps://www.blogger.com/profile/01777929408680234896noreply@blogger.comtag:blogger.com,1999:blog-2568941354104807757.post-74905717201332645102013-02-01T00:16:23.459-05:002013-02-01T00:16:23.459-05:00You should have rejected that gift when you were m...You should have rejected that gift when you were mayor and kept paying for new benefit accruals. I am sure none of your consultants ever recommended such a thing. The pension fund becoming underfunded within a few years is a sign that the investment strategies and contribution policies were not compatible. If I take a lot of risk such that a financial crisis can wreak havoc, I need to acquire a sufficient funding cushion in good economic times. Contribution holidays are a no-no for risky strategies.<br /><br />If we really want to measure overall pension plan performance, we need to measure not only the returns from plan investments, but also the return impact that typical plan sponsor actions have. I have thus designed the Pension Plan Internal Rate of Return (PenPIRR) as a combined measure of Investment Returns and the "Returns on Governance". The latter gauges the adequacy of benefit and contribution policies. <br /><br />A decision to grant higher benefits would lower the Returns on Governance (and thus PenPIRR) immediately. With our current measurement practices, it would never show up in a return measure, it would only affect the funding ratio. <br /><br />I believe that the current pension mess is the result of bad accounting and performance measurement in the corporate and public pension world. It won't be pretty to see how this will be sorted out in the public sector. There will be plenty of work for lawyers.Norman Ehrentreichhttp://www.ldi-research.com/blognoreply@blogger.comtag:blogger.com,1999:blog-2568941354104807757.post-82080848736295077542013-01-29T00:40:13.189-05:002013-01-29T00:40:13.189-05:00David, you might be interested in connecting with ...David, you might be interested in connecting with John Minahan, who is doing some interesting work on the ethics of accounting assumptions for pension funds. http://www.bsas.org/BSAS_Programs_Events/PEC01-01.asp?ID=383 Matthewhttps://www.blogger.com/profile/09391483690833886912noreply@blogger.com