Follow Up: GASB proposals could stir things up for UCRP via CalSTRS

Yesterday, we noted proposed changes in public pension accounting rules by GASB, the Governmental Accounting Standards Board. An observation from Academic Council Chair Robert Anderson, added to that blog note, indicated that the GASB proposal would not have a direct impact on UCRP. However, the problem facing UCRP is partly political.

As prior blog posts have noted, the governor is planning some kind of pension proposals – apparently requiring a ballot proposition. Such a proposition, depending on how it is worded, could sweep UCRP into a statewide change, even though the Regents enacted their own pension modifications in December 2010.

There is a report today in the Sacramento Bee that the big CalSTRS fund covering schools, whose unfunded liability is already large under current accounting rules, would experience a big jump in its recorded liability:

…The California State Teachers' Retirement System already faces a funding gap of $56 billion – the difference between the money it expects to have on hand over the next 30 years and what it will need to pay out in benefits during the same period. The (GASB) proposal would triple the gap – on paper – to around $150 billion, said Ed Derman, deputy chief executive officer at CalSTRS…

Full article at: http://www.sacbee.com/2011/10/18/3986621/outlook-goes-from-bad-to-worse.html

Anything that raises the pension issue in the larger state pensions – CalSTRS and CalPERS – could lead indirectly to UCRP changes that go beyond what the Regents enacted. While CalPERS apparently would not be much affected by the GASB proposal, $150 billion at CalSTRS will surely stir things up.

Buried Lede on Retiree Health?

From Wiktionary

“bury the lede”

(idiomatic, US, journalism) To begin a story with details of secondary importance to the reader while postponing more essential points or facts.

http://en.wiktionary.org/wiki/bury_the_lede

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An article in today’s calpensions.com indicates that both CalPERS and CalSTRS have asked GASB – the Governental Accounting Standards Board – for a delay in its proposed new rules on public pension accounting. The rule would allow public pensions such as UCRP to continue with their projections of earnings on their assets (7.5% for UCRP) but would require a much lower discount rate for unfunded liabilities. The net effect of the proposed change would boost the accounting value of unfunded liability.

Buried at the end of the report is an indication that GASB is moving towards doing the same for retiree health care. Note that at UC, as in most public systems, there essentially is no trust fund with assets for retiree health – the system is pay-as-you-go. Hence, everything is unfunded liability. The impact on reported unfunded liability for retiree health would be much bigger than for pensions.

There is also a final sentence that indicates GASB is looking at “financial projections.” It is not clear to what that phrase refers, but it sure sounds like GASB is looking at whether assumed future earnings rates on assets, e.g., 7.5% for UCRP (and higher at CalPERS and CalSTRS), are too high.

Here are the last few sentences of the article:

Other speakers at the hearing said the new accounting rules should require government employers to report their retiree health debt. The state, for example, owes an estimated $60 billion over the next 30 years for retiree health care. Like most government employers, the state has not set aside money to invest and help pay for retiree health care promised current state workers. The state is paying about $1.5 billion for retiree health care this year, a rapidly growing cost.

“I think I can offer you some hope,” …the GASB chairman, told a speaker. “Dealing with OPEB (other post-employment benefits), primarily retiree health benefits, is something that’s on our agenda. We will be looking at that going forward.”

(He) told another speaker that GASB has “another project that is looking at financial projections.”

Full article at http://calpensions.com/2011/10/17/calpers-calstrs-delay-new-accounting-rules/

UPDATE: Academic Council chair Robert Anderson adds the following note re UCRP via email (in italics below):

The actual GASB proposal for pensions is to project the liabilities year by year; then project the assets forward, including future contributions according to your actuarial plan (which you must be actually following, not just planning to do at some indefinite point in the future) and your assumed rate of return on assets and see if you ever run out of money. If you do, all liabilities beyond that point are discounted back at a lower rate, most likely a corporate bond or a taxable municipal bond rate. If not, all liabilities are discounted back at the assumed rate of return. We have an actuarial plan that restores us to full funding in 30 years, and we are currently following it, so the new GASB rule on pensions should make no difference to us.

It would make sense for (GASB) to apply that to retiree health. But note we are already discounting retiree health at (if I recall correctly) 6%, precisely because we are not prefunding it. Thus, I think there would be little change in our retiree health liability. I presume CalPERS and CalSTRS are also currently required to use the lower rate also. Thus, I am not sure it would make much difference.

In short, the impact on retiree health accounting would depend on whether GASB insisted on a rate below 6%.

UCLA History: Reservoir View

Early aerial view of the UCLA Westwood campus also shows the reservoir north of Sunset Blvd.

Pension Train Is Leaving the Station

The Legislature has formed a joint committee to hold meetings around the state on public pensions. As noted in a prior blog post, the governor seems to be formulating his own proposal which he says will involve constitutional changes and need a vote of the electorate. On the joint committee:

Legislative leaders have named six lawmakers to a joint committee that will hold hearings on changes to public employee pension systems. Assembly Speaker John A. Pérez has appointed Michael Allen, D-Santa Rosa, Warren Furutani, D-Gardena and Jim Silva, R-Huntington Beach. Senate President Pro Tem Darrell Steinberg has appointed Gloria Negrete McLeod, D-Chino, Joe Simitian, D-Palo Alto and Mimi Walters, R-Laguna Niguel. Negrete McLeod and Furutani will co-chair the committee.

Full article at: http://blogs.sacbee.com/the_state_worker/2011/10/three-state-senators-named-to-pension-conference-committee.html

Will there be input in either of these forums from UCOP? As noted many times on this blog, a statewide "solution" might sweep in UC and override the changes the Regents have already made in the UC retirement system. The pension train is leaving the station.

Want to go home today from UCLA?

An earlier post on this blog noted an ongoing labor dispute at the reopening Hotel Bel-Air. From LAObserved’s morning buzz comes this word of caution for today:

Union hotel workers will picket the Hotel Bel-Air at 4:30 p.m. and at 5:30 p.m. march to Sunset Boulevard and Stone Canyon Drive. Traffic alerts have gone out.

The earlier post was at http://uclafacultyassociation.blogspot.com/2011/10/bel-air.html

The Sprowls Website on Computing

What you see above is a screenshot of a website designed by Professor Emeritus R. Clay Sprowls, a professor of statistics at what is now the Anderson School from 1951 until 1990 when he retired. The dean of the Anderson School last night circulated an email obituary of Prof. Sprowls. Mentioned in the obit was the above-website which provides a history of computing at the School from the 1950s through the 1970s. Although it is largely specific to the School, I suspect there were similar events going on around the campus as computing was introduced to the university and then spread. For those interested in a piece of that history, the Sprowls website is at http://personal.anderson.ucla.edu/clay.sprowls/index.htm

As an additional recollection, yours truly can remember arriving at UCLA in 1968 from MIT (where - not surprisingly - computing was more advanced). MBA students - as part of their curriculum - were writing little programs that did arithmetic problems, punching them on cards, and feeding them into a machine - some kind of IBM computer - roughly the size of a dishwasher. The machine churned out the results on separate cards which then had to be printed on paper at another machine.

The cards were free and left in a bin for student use. Eventually, it turned out that folks were coming in, helping themselves to large quantities of the cards, printing ads on the back, and distributing the ads in neighborhood mailboxes. The system was changed to a vending machine that charged for cards. The vending machine was nicknamed HAL in honor of the evil computer in the movie "2001."

Note: An obituary for Prof. Sprowls is at http://www.anderson.ucla.edu/x38361.xml

Peter Taylor, chief financial officer of UC, at Milken Conference

At the Milken State of the State conference of Oct. 13, Peter Taylor - chief financial officer of UC - was a panelist and spoke on the economic impact of UC on California, tuition, out-of-state students, privatization, and UC-Merced.

This is the same event at which Gov. Brown spoke earlier in the day. See prior post. (Cellphone picture of event on the right.)

Below is an audio of the Taylor excerpts. (Video with still picture.)