Public-Employee Pension Fraud


Friday October 10th, 2014   •   Posted by Craig Eyermann at 6:11am PDT   •  

It is taking an increasing amount of “creative” accountingor, really, outright fraudto make a number of troubled public-employee pension funds look solvent when they are nowhere close to having the money needed to pay retiring government employees for the extremely generous pensions they’ve been promised. And when the fraud is found out, taxpayers are being increasingly stuck with the bill.

The latest example of fraud committed by politicians and government bureaucrats comes from the state of Illinois, where it would seem that government at all levels cannot exist without it! Jean Lotus of the Forest Park Review shows how one municipality’s accounting shell game came crashing down with a large tax hike being imposed its wake:

Forest Park’s police and fire pension systems took a hit this year because a simple actuarial change recalculated how long safety personnel can be expected to live. Actuary Timothy W. Sharpe, of west suburban Geneva, changed one element of his calculations last year, revealing a $104,000 shortfall in the police pension fund and a $94,000 shortfall in the fire pension fund.

That money was added to the village’s tax appropriation levy in July, boosting property taxes in town by about $200,000.

The change came when Sharpe switched last year from a 1971 mortality table to a new table that more accurately reflected the lifespans of police officers and firefighters living in 2000.

For more than a decade, Sharpe had been using a group annuity mortality table called the GAM-1971. As its name implies the table was created in 1971 using mortality data from police officers and firefighters collected between 1964 and 1968. Life expectancies on the tables tracked public safety workers who, at age 50, would have been born between 1914 and 1918.

The difference, of course, is that the lifespans of retirement age Americans has increased quite a bit since the 1960s.

age-65-remaining-life-expectancy-1950-2009

The accounting fraud in this case enabled Forest Park’s politicians to claim that their pension fund was being adequately funded to meet its projected liabilities, when in reality, it was far short. That deception then allowed the politicians to spend the tax revenue for other priorities, as the public-employee pension fund was being drawn down over time.

When the fraud was ended, the government was faced with a choice: either hike taxes on residents to make up the shortfall and continue paying public-employees their generous pensions in full, or reduce the pensions to match the returns from the funding that had actually been set aside. As happens all too often in these cases, the politicians sided with the interests of government employees against the public.

And thus, no politicians or bureaucrats were harmed in the production of this long running episode of public malfeasance.




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