To the taxpayers of Prescott and the rank and file members of the Public Safety Personnel Retirement System (PSPRS): Do not be distracted by the shiny object in the corner. Yes, Brian Tobin, Chairman of the PSPRS Board is correct; combined assets of the three retirement plans within the PSPRS do approach $9 billion (Talk of the Town, March 10). But do not let the Board confuse the facts.
Instead, let's concentrate on the public safety personnel plan within PSPRS, where the Prescott's pension liability lies. What Mr. Tobin neglects to tell you is net liabilities within that plan increased almost $1.6B in the last fiscal year alone. And yes, while the fund did suffer losses in the Dot.com and housing market crashes, so did everyone else. The truth is, the funded ratio of the plan stood at 92.4% in 2004 -- after the Dot.com crash. It has since fallen almost in half, to 46% funded today. So while the markets have recovered since those financial events, it is the public pension funds which continue to lose taxpayer money.
Mr. Tobin also boasts his investment returns “are elite among pensions that operate with a similar risk adverse strategy” and “outperforms two-thirds of their peer pensions.” (Given the public pension funds' poor performances across the nation, this is akin to a child bragging to his mother he received the highest grade among his classmates who all miserably flunked algebra.) Moreover, Mr. Tobin would have you believe his diversified investment strategy will put the fund on the path “to provide sustainable benefits for the state's public safety employees and financial predictability and affordability for employers.” Historical PSPRS investment data belie that statement. In any event, Mr. Tobin's speculative investment returns and bleak future projections by pension experts are just part of the problem. To make sense of the local (and state) pension problem, we have to dig deeper.
The rate of return on the pension investments -- set by the PSPRS Board -- determines the standard pension payment Prescott makes to PSPRS every year. The higher that assumed rate of return, the smaller the upfront contributions/payment to the pension fund by the employer/taxpayer and the officer/employee. Since the Board's investment assumption has been absurdly high since 2000, Prescott's upfront payment has been kept artificially low to mask the true pension costs. The bottom line is, no (or very little) shortfall would have occurred had the Board properly computed the city's standard payment using a reasonable investment rate at the outset. And now 100% of that pension liability falls to the Prescott taxpayer.
To make matters worse, on the back end, Prescott's taxpayers are continually on the hook for the Board's gamble that the pension fund's investment returns would cover the inadequate upfront contribution payment they themselves determined. George Will, conservative columnist writing on this very topic states, “Nowadays, America’s most persistent public dishonesties are the wildly optimistic, but politically convenient, expectations for returns on pension fund investments.” Quite simply at this point, no matter what fairy tale picture the Board wishes to paint, PSPRS cannot invest its way out of this pension crisis. (Nor can politicians tax their constituents as “the solution” to the city's pension liability.)
Prescott's pension liability continues to rise exponentially; the deck has been stacked against the taxpayer from the beginning. First, because the Board's determined (deficient) standard payment assured the city would not have the money to pay the pension promises as they became due. Secondly, because not even Warren Buffet could meet the implausible assumed investment rate set by the PSPRS Board.
As I continually say to the rank and file members: the PSPRS Board is surely losing the hardworking taxpayer's money, but it is also slowly losing their beneficiaries' financial future as well. Time to hold the Board accountable.