Re(4): This Monday retirees meeting at Golden Corral IP: 72.184.14.239 Posted on November 25, 2008 at 08:52:41 PM by david keene
The economic news is not good. That's, of course, an understatement.
As of last Thursday's meeting the Fund was just under a Billion dollars. Two excellent days in the market should have the Fund over a Billion as of today 11/25/08.
The bad news is that the Fund is down around $700 million from the end of fiscal 07.
We should hope and pray that the market recovers somewhat before the end of the present fiscal year.
The market is currently being bombarded by some economic weapons of mass destruction such as "derivatives" and "credit default swaps ". The debt owed on these two items may be in the hundreds of trillions. If that is true it could effect the entire world economy not just America and our pension fund.
For the sake of argument lets just say that the Pension Fund does not recover this year and the loss is 21 percent. Because the Fund must compound by 5% every year that means that Fund must now make up the negative 21% plus 5% for a total of 26% for the current year only. Remember last year the return on investment was a negative 14.1%. Add 5% to that as per contract for 19.1%.
An easier way to look at this is to take the Fund at the end of fiscal 2006, which I believe was 1.7 billion. The Fund needs to grow by $85 million(.05 X $1.7 billion) to meet last years contractual obligation and remain actuarially sound. To make up for the next year the Fund must grow by an additional $89 million ($1.7 billion plus $85 million X.05).
The Fund must get to that size before any additional monies are added to the PRAA.
I have not even addressed what will happen to our PRAA. If the Board spreads the negative returns to the PRAA as they have done in the past this may effect the "allocated " PRAA. I will need to see a recent Actuarial report to comment on this.
There is a way that the Board can adjust for the negative returns and not hurt the PRAA. They can also keep the contributions for the city and the employees at a minimum as the market recovers.
I will be passing that information to the Board in the future. Whether they listen or not is a another matter.