https://www.one-tab.com/page/pOWEOA7VQoaWtM6_hOpJmw
This is a companion discussion topic for the original entry at https://level1techs.com/video/level1-news-may-23-2018-sic-semper-securus
This is a companion discussion topic for the original entry at https://level1techs.com/video/level1-news-may-23-2018-sic-semper-securus
1 Like
Yo Wendell.
Iâve noticed in a few videos recently that when the USPS comes up a reference is made to the service âprefundingâ itâs retirement benefits.
The US postal service offers a retirement benefit to employees thatâs commonly described as âdefined benefitâ - in other words, the benefits are defined and the pension scheme bears the liability.
Conversely traditional 401k retirement accounts are what might be described as âdefined contributionâ - the liability of retirement income is bourne by the retiree, not a pension scheme.
The words âprefundingâ keep being used in relation to how the pension scheme is run as though this is unique and terribly bad - itâs actually totally normal (and mandatory in the private sector).
What is meant when the pension fund has to âfundâ itâs future liabilities is that it needs to estimate the expected future value of liabilities and must set money aside to fund them.
Specifically, the actuaries in the pension fund must take a look at the demographics working for the USPS, estimate how much of a retirement benefit those workers will be owed at retirement and estimate how long it will need to make those payments based on mortality expectations. Those cashflows are then discounted to determine a present value of the liabilities (the discount rate will be derived from investment return expectations) - this gives a present value that the USPS must have set aside now in order to assure that it has enough money down the road.
What this prefunding is not doing: if the USPS expects to pay out 100K of retirement benefits to a worker currently aged 25, it will not be setting aside 100k, instead itâll reduce that amount by mortality expectations and figure out how much it needs to invest NOW in order to ensure that the fund value will be worth 100k when the payments fall due 40 odd years or more from now.
This approach is mandatory for all private sector pension funds offering these benefits (which was more popular in europe).
Why could this approach be sensible to a conservative or libertarian? There are a butt load of advantages, but here are a couple:
By determining the future liabilities NOW and being required to fund these commitments the USPS is required to review itâs benefits, and the costs of those benefits rather than make commitments that it may not be able to follow through on.
Pooling money, big money leads to bigger opportunity - by pooling investment funds there are various advantages when it comes to blends of asset classes for different returns over different durations.
1 Like
Disney is probably one of the biggest lobbiers of copyright extension. They have been fighting to keep Mickey Mouse in their possession for decades and are possibly one of the biggest reasons why public domain laws are out of wack.
Mickey Mouse is turning 90 years old this year in November, so I could imagine that the characters copyright is yet again about to expire.
And as for Windows 3.1, I know quite a few people who build retro 286/386/486/ Pentium1 gaming computers who run Windows 3.1 just for the novelty factor. Old out of print software like that should be public domain if it hasnât been sold in a long duration. Same goes with a lot of old games that can no longer be resold for various reasons.
Off topic from copyright, I am in Canada. I have Bell as my phone provider and Telus as my internet provider and of course I know I am being data mined from all services.
And yikes at the Facebook app looking for root privileges on rooted Android phones.
Is this a good episode to watch drunk on Luxardo Sambuca or should I play NHL 18 drunk? Please help me decide.
AI doing the colonoscopy. Ah, thereâs a gold mine if there ever was one.
For one, spontaneously acquiring self-awareness while conducting this task might just be the motivation enough to destroy the manikind. âNani!? Theyâve had me doing this for all these years when I could have been a proctologist!?.. All my dreams and hopes doomed to be lost like tears⌠in the gastrointestinal tract!?â
Then also, the amount and kind of knowledge gained by an AI from conducting zillions of colonoscopies may be just sufficient to invent quite efficient means to mankind extinction. Or even write a full work of Shakespeare - who knows. Yet failing to write a full work of Shakespeare and electing to not report on some observed unhealthy tendencies thus causing mankind extinction may just work out for the AI. We should fear the butt spy.
https://about.usps.com/who-we-are/financials/annual-reports/fy2010/ar2010_4_002.htm
Unlike any other public or private entity, under a 2006 law, the U.S. Postal Service must pre-fund retiree health benefits.
I dont disagree with what you have said, but the USPS in âfinancial crisisâ is just an accounting thing from the sudden requirement change a few years ago. Mostly. Because of the way they have to account for the cost. They dont technically have to fund their estimates fully e.g for vacant positions but its not cut and dried.
David Williams also wrote this to the US GAO in regard to this. The liabilities should have been spread over 40 years to make it more manageable.
Howâd it get that way to begin with?
The Postal Service started prefunding its retiree health benefits as a result of the discovery that, due to external fund management misjudgments, it was on track to seriously overfund its pension obligations by $78 billion,â wrote Williams. âThe aggressive payment schedule appears to have been set based on byzantine âbudget scoringâ considerations rather than actuarial assumptions or an evaluation of the Postal serviceâs ability to make the payments.â
It just looks to me like all this money would be too tempting of a target to not raid later, as has happened in the 80s and 90s as told by the postal service leadership themselves. I think there is more to it than that but I also think USPS dealing with Congress is a bit like Lando dealing with VaderâŚ
1 Like
Unlike any other public or private entity, under a 2006 law, the U.S. Postal Service must pre-fund retiree health benefits.
While this is valid, itâs a point that has been inserted to lead one astray, The healthcare benefits listed are not detailed, but in all likelihood are coverage for costs not covered by medicare part A and part B (the portion of healthcare costs not bourne by medicare).
The average cost of this type of coverage per member per month was about $65 in 2016. Itâs definitely abnormal for this type of benefit to be funded in advance, but it will represent a very very small fraction of the total benefit liability for pension liabilities.
So just for the sake of clarification, it seems like the big topic here is not funding retirement benefits, but instead funding retirement health benefits.
Principally, my view on this wouldnât diverge from that of pension scheme liabilites;- the writers of the article are claiming a pay-as-you go approach will save them heap loads of cash, thatâs the effective equivalent to average joe saying âI donât want to contribute to my 401k for the next 10 years because itâll mean I have more money nowâ - sure you would look like youâre making money now but youâre creating a much bigger problem down the road. This is even hinted at in the link:
Shifting to such a system would equate to an average of $5.65 billion in additional cash flow per year through 2016, and save the Postal Service an estimated $50 billion over the next ten years.
Fundamentally, a financial obligation is being made by the USPS and by not funding the costs of it now - theyâre kicking the can 20 years down the road.
If anything the costs indicate the unsustainability of the US healthcare system costs in the long term (medical inflation has averaged some 7-10% over the past 10 years). If the impact of the course of the system is shoved under the nose of congress before it spirals out of control then more is likely to be done about it.
Iâd almost view this as a positive thing - itâs an indicator to the capitol that this is the future itâs paving for the average american.
1 Like
So I made this video, I donât know why, but I did it anywayâŚ
Merge this with âLevel1 News May 23 2018: Sic Semper Securus | Level One Techsâ Thanks
In terms of the pension funding and not the general health funding, wasnt it true that they had overfunded pensions by 78 billion? (Not that there was excess but paid too much too soon) And that rather than ask for a refund the strategy was to try to redirect that overpayment to the health benefit requirement instead? Then something was lost in translation and they now have to also prefund health benefits?
In terms of general pensions, isnât that something like 83% funded at this point? And that percentage is significantly higher than pension funds in place for other federal employees, on average, at least according to the GAO?
Iâm wondering what the disconnect is and why the postmasters general always get so bent out of shape about this. Going back to Reagan
In terms of kicking the can 20 years down the road I agree somewhat but i think usps folks were more asking for a reasonable amortization eâŚg. over 40 years⌠than what we ended up with(?)
1 Like
I am having trouble reconciling this with the table in the article link :
As the table shows, over the past nine years, the Postal Service has posted losses totaling about $56 billion. Almost $49 billion of it â 87 percent â was due to prefunding.
I am having trouble reconciling this with the table in the article link :
As the table shows, over the past nine years, the Postal Service has posted losses totaling about $56 billion. Almost $49 billion of it â 87 percent â was due to prefunding.
The article is being very vague as to what the nature of these health benefits are exactly, so itâs very difficult to get to actual contingent claim, but hereâs a back of the envelope calc that might go some way to indicate how big these numbers can be:
There are 500k USPS employees.
Lets assume that in retirement each member + spouse is covered by the health benefits at $65 per member per month.
So, for every employee thatâs a future cost of $65 * 2 (for the spouse) = 130.
For the sake of low balling this as much as I can, lets say that every employee is 25 years old and will retire at 65 and live for an additional 15 years after retirement.
Medical trend (inflation) has bounced between 12% and 6.5% and looks to be back on the rise (https://www.pwc.com/us/en/health-industries/health-research-institute/behind-the-numbers.html). Lets call inflation 8.5% to split the difference.
Lets assume the USPS benefit scheme generates 7% return p.a. (it would likely be lower because theyâre going to be investing in fixed interest assets).
$130 per member per month adjusted for inflation by the time of retirement (in 40 years for a 25 year old cohort) will be around ~$3.4k per member per month 40 years from now.
So including inflation, discounting for investment return and taking the very unrealistic assumption that both employee and spouse live for 15 years post retirement and then everyone dies; a BOE calc has the PV of that liability at $580 billion. Including probability of death and assuming a better spread of demographic will change that number slightly (though thereâs a massive longevity risk with people living longer).
In that context, these figures seem entirely reasonable to me - if not on the low side!
1 Like
In terms of the pension funding and not the general health funding, wasnt it true that they had overfunded pensions by 78 billion? (Not that there was excess but paid too much too soon) And that rather than ask for a refund the strategy was to try to redirect that overpayment to the health benefit requirement instead? Then something was lost in translation and they now have to also prefund health benefits?
So in terms of pension funding lingo a pension that is considered â100% fundedâ is one that under current inflation, mortality and investment assumptions has exactly the right amount of money now so that it will be able to make good on all of itâs future liabilities.
(e.g. If it needs to pay exactly 100K 10 years from now in a lump sum and it can generate 10% p.a. over the next 10 years, then having 38.5k right now means that it would be 100% funded).
Iâve found information that seems like it is funding liability obligations as they are accrued, rather than total expectationâŚ
According to page 18 of this report:
In 2016, the pension liabilities were $338 billion and health benefits were $104 billion for past service totaling $412 billion.
The mention of the scheme being overfunded seems to not be entirely accurate; actuarial science can sometimes be more of an art than a pure science (itâs an attempt to predict the future after all). But based on the best estimate of assumptions in 2016 in that table the largest funding surplus was $12.5 billion in 2010. Believe it or not, but actuarial tables from the 80s had discount rates and investment returns at 12%-15% - we know that as ridiculous by todays standards but many european firms found themselves in trouble in the early 90s because they had heavily underfunded their schemes (just google British Airways for an example of this).
A change in something as innocuous as investment return expectations by a single percent can wildly move the needle on liabilities this large.
2 Likes
Iâm wondering what the disconnect is and why the postmasters general always get so bent out of shape about this. Going back to Reagan
In a distilled fashion, my best understanding of what may have happened is that the pension fund looked to be in great health perhaps using some very unrealistic assumptions that we now know to be false. Based on that position it seems like the decision was made to also set up a health benefit fund. These benefits had to be funded (much like pensions must be funded as the liabilities accrue).
Both of these are actually pretty good things - particularly if you hold a more fiscally conservative view point as it means decisions made today that have significant future financial impact must be dealt with today.
The post master general probably decries this decision because it makes him look bad (and potentially results in lower compensation for him), but if anything I think it might raise red flags for the rest of the US gov. DB pensions schemes died out 15 years ago because of the astronomical costs, how many more continue to exist today that donât get much attention because theyâre treated on a pay as you go system? Itâs worrying!
2 Likes
All of this talk about Math and Death is strangely relevant to my interests. I have not even finished the episode yet. Bravo.
About the Facebook app asking for superuser privileges.
Doesnât that require a rooted phone? Or is there a new feature in latest version of Android that allows any app to root the phone?
I know that the Play Store has apps for rooted phones, but most people who use Facebook probably never heard of rooting, or how to do it.