2010 Fall Seminar Presentation - Eric Rose, Englander, Knabe & Allen

1. Media and Incident Management
Pensions After Bell
by Eric W. Rose

2. The Face of Pensions
• Increasingly the issues underpinning pension
battles are being debated – and decided – in the
court of public opinion
• The best approach to communications is to ensure
control over your reputation and communications

3. Bell Changed the
Debate
• The pension battle has now morphed from:
– The benefits are too generous”
– To “The benefits are too generous AND unrealistic
return rates and valuations of the pension funds are
a huge problem threatening the stability of public
entities".
– Elected officials are to blame

4. Current
Situation
The public debate has shifted dramatically in three key
ways:
1. Pension funds themselves are now the story
2. How pension funds determine assets and liabilities
-
is now the story
3. How pension funds invest to meet their liabilities –
is now the story
These three issues are just a few of the launching
pad issues for further attacks!

5. Times Have Changed
It’s Time to Pivot
• No longer is it simply “the employer promised too
much”
• You and your staff are now considered an
integral part of the problem

6. The Headlines
are NOT Pretty
• The media is talking about pension reform… DAILY
• Nationally and locally, newspapers are saying:
– “The Current System Is Plainly More Than
The State Can Afford”
– “We Need A New System With Much Less
Generous Pensions”

7. Attacks on Pensions
in the Newspapers
• If California Is Ever To Emerge From Its Budget Crisis,
Something Must Be Done To Lower Pension Costs
• Pension Reform Faces Tough Fight
• California Has An Unsustainable Public Employee
Pension System That Will Lead To Fiscal Collapse Of The
State Unless Major Reforms Are Made Soon
• California Must Reign In State Pensions To Avoid Fiscal
Collapse
• Lawmakers Have An Obligation To Place The Interests Of
All Californians Above Those Of Public Employee Unions

8. Pension Bomb Ticks Louder
California's public funds are assuming
unlikely rates of return.
The time-bomb that is public-pension
obligations keeps ticking louder and
louder. Eventually someone will have
to notice.
2010 Headlines
Stanford students ‘rock’ public pension funds
A group of graduate students used “risk-free”
bonds, rather than stocks and other
potentially higher-yielding investments, to
calculate what a New York Times story called
a “hidden shortfall” in CalPERS, CalSTRS and
the UC Retirement System.
State plans' false hopes may
have high bill
State pension funds' wishful
thinking could turn into the
taxpayers' worst nightmare. If
state pension plans cannot earn
their actuarial assumed rates of
returns, taxpayers will have to
put tens of billions of dollars
more into the funds.

11. Underfunded Teacher Pension Plans:
It’s Worse Than You Think
This paper focuses on the crisis in funding teachers’ pensions,
because education is often the largest program area in state
budgets, making it an obvious target for cuts.
2010 Headlines
The Market Value of Public-Sector
Pension Deficits
States report that their public-employee
pensions are underfunded by a total of $438
billion, but a more accurate accounting
demonstrates that they are actually
underfunded by over $3 trillion.
Payback Time: Public Pension Funds
Are Adding Risk to Raise Returns
States and companies have started investing
very differently when it comes to the billions
of dollars they are safeguarding for workers’
retirement.

12. Public Pension Deficits
Are Worse Than
You Think
• How can municipalities assume an 8% rate of return?
• Pension plans for state government employee’s today
report they are underfunded by $450 billion, according
to a recent report from the Pew Charitable Trusts.
• US public pensions face $2,000bn deficit
– The US public pension system faces a higher-than-
expected shortfall of more than $2,000bn that will
increase pressure on many states’ strained finances
and crimp economic growth, according to the
chairman of New Jersey’s pension fund.

13. Myths Have
Become Reality
• You are an informed audience, and know that many of
these stories are wrong. What does the public know?
• A Google search for pension critics “Joseph Rauh” and
“Andrew Biggs” combined with “public pensions”
revealed the following:
• Joseph Rauh and his critique on the assumed rate of
return… 2,200 times
• Andrew Biggs and his critiques on public pensions…
21,900 times

14. Should I
Respond to Blogs
or Ignore them
• Social Media Staggering Influence on Journalists
• Social media drives content decisions for the traditional
press and influences the way reporters and editor’s
research and write news.

15. The Facts
are Staggering
• 89% of journalists source stories from blogs
• 65% of journalists use Facebook and LinkedIn for research
• 61% of journalists rely on Wikipedia for information
• 52% of journalists use Twitter

16. The Facts
are Staggering
• 62% of journalists are now required to write specifically for
online news sections
• 39% of journalists are now required to blog
• 37% of journalists are now required to have a Twitter account
• 52% of bloggers now consider themselves journalists (up from
33% in 2009)

17. The Opponents “Appear”
Credible
• The opponents cite “academic papers” and professors.
• The public expects if there was another side, they would
hear it.
• Your employers are not the experts in pension finance.
• The pension funds who have the expertise to present
the facts, remain silent
– very little editorials or push back to false
information
– public thinks what they are hearing must be true

18. What Can You Do?
• Provide members and the public with facts/figures in
ways people can understand
• Rule #1: Be Transparent & Honest
• Is your website up to 2010 standards?
– Is information readily available about the operation
of your pension fund on your website?
– Do you have a media room?
– Can you educate the public without your message
being filtered

19. Fight Back
with Facts
Facts you should know:
• Average CalPERS pension is
$25,000 per year.
• Half of CalPERS retirees receive
$16,000 per year or less.
• Seventy-eight percent of retirees
receive $36,000 per year or less.

20. Get Ahead of Critics
with FACTS
• The public assumes taxpayers provide all the money in a
pension fund.
• Have you told the public the facts about the source of
the money in the pension fund?
On average, every dollar paid to public pension fund
retirees comes from three sources
• Investments 70 - 75%
• Employers 15%
• Members 10%
If you don’t tell the public this—who will?

21. Need to Fight Lies
with Facts
• Stanford University and the Reason Foundation
• Wrongly concluded pension funds use overly optimistic
assumptions
• Stated pension funds should use a risk-free investment return
assumption.
• Professors are now calculating when your pension will run out
of money, using these widely understated return rates as the
basis

22. The Result:
Myths Have
Become Reality
• Conjured up a half-trillion-dollar liability
• Planted the falsehood that pension funds are hiding
trillions of dollars of liabilities.

23. Return Rates: Factual
Rebuttal at your
Fingertips
• The Public doesn’t understand why you chose your
return rates
• Can you explain the basis of your assumed rate of return
in an understandable paragraph?
• Can you explain why the return rate the opponents use
is unrealistic, in a paragraph?
– The public needs to understand how choosing
unduly low/pessimistic return rates will affect
taxpayers
– Can you explain the cost to your employer—right
now---should you adopt those return rates

24. Historical Return:
Factual Rebuttal at your
Fingertips
• Have you calculated how your fund would have done
investing in the risk free 10 year treasury the opponents
use
• Have you calculated how much more money you have
earned---i.e., saved the taxpayer---with your investment
program over a long term period such as 10, 15, or 25
years?
• The next slide is an example of what you need to create

26. Valuation of
Your Assets
• You use actuaries and sometimes arcane
“accounting/reserving” schemes to value your assets
and liabilities.
• Opponents make a simple argument---you should use
“market value” for everything.
• Can you explain, in one paragraph of understandable
English, why your valuation “scheme” is both correct
and appropriate?

27. What Now?
• Proper messages need to be developed, calculated
response must be given, and your members credibility
and image must be protected
• You need to lead the conversation rather than chase it
• If you are explaining you are losing
• When one party attacks, and their charges go
unanswered, they control the narrative and in short
order their arguments begin to be accepted as true.

28. “It's not enough to rage
against the lie. You've got
to replace it with the
truth.”
Bono (famous philosopher)
What Now?