Cisco Aguilar Responds to Guice’s Claims of Impossibility

Editor’s Note: Retiree Cisco Aguilar has been a thoughtful and reasoned observer and critic of the Singing River Health System pension debacle. Mr. Aguilar shares his thoughts on the most recent developments between SRHS and the Jackson County Board of Supervisors.

In a July 7^th press release and again during the July 20^th Board of Supervisors meeting, Billy Guice, special counsel for the Board on SRHS matters, boldly proclaimed that 100% funding of the SRHS defined benefit pension plan is an “impossible” task. As proof for his claim he has allowed publication of calculations performed by LaPorte, an accounting and business consulting firm, based on what he considers eminently reasonable assumptions.

This frontal attack on the pension members’ expectations was followed by a daring publicity stunt in the form of a proverbial carrot-and-stick offer to SRHS coupled with a public rebuke to the Supervisors’ archenemy, the Sun Herald.

Aside from the obvious fact that this staged series of performances has been orchestrated with a view to the August 4^th election, the Supervisors are nonetheless confronting us with some substantial food for thought. Here I will dwell exclusively on the pension funding question.

Interestingly enough, Mr. Guice has not revealed yet his solution to the pension issue under the cover that it is now up to the judicial system. This is most likely on purpose to keep the uncertainty alive as a way to avoid potentially detrimental publicity before the upcoming election.

Mr. Guice supported his authoritative assertion on months of analysis aided by actuarial experts. He, however, attempted to demonstrate his findings by just publishing a single theoretical scenario from which he easily derived overwhelmingly pessimistic consequences.

As it currently stands, the supporting data is so limited by predetermined and probably arbitrary assumptions that deducting from it the inescapable conclusion that 100% funding is impossible can only be characterized as an elaborate hoax designed to lower expectations without opening the door to meaningful discourse.

I base this statement on the fact that even without the benefit of actuarial expertise I can easily point out at least three assumptions central to Mr. Guice’s demonstration which are very much open to interpretation and therefore manipulation.

First, he envisions active employees resuming the 3% contributions to the plan just like they were doing prior to the termination attempt. Is this really a reasonable parameter if we are to attain the full funding of the plan? Of course not!

Assuming in the first place that a return of employee contributions proves to be advantageous for the ultimate health of the plan –a very questionable proposition in itself– the percentage should be, at the very minimum, closer to the 9% required by PERS if not even higher due to the funding level differences between the two plans. Actually this should have already been done by the SRHS leadership long before opting for implementing a deliberate pension starvation plan. Unfortunately employees were never considered partners at SRHS, not even when it came to their own retirement plan.

Second, the 6% investment return on the pension plan assets is ultraconservative and ridiculously low when compared with other public defined benefit retirement programs in the nation. A return of 7.5% or even 8% is reasonable for most of these plans and 7% would be the bottom of the barrel except for just four of them which are still at or above 6.5%.

Regardless of whether a given rate is more appropriate than another one or not, a more generous and commonly used rate of return should be used as the starting point for discussion purposes. A slightly below the median return rate of 7.5% would constitute an appropriate starting assumption for testing the general viability of the scenario. If 100% funding is found to be possible at all, then the contested parameters can be tweaked as necessary afterwards.

In support of his views, Mr. Guice points out that many defined benefit retirement plans have been abandoned because they are ultimately unsustainable. He refers mostly to corporations, which are required by federal regulations to contribute on the basis of current interest rates, resulting in uncertain and extremely volatile pension costs. This accounts heavily for the corporate rush to abandon defined benefit plans. Public pension plans, however, base their contributions on long-term investment return assumptions that promote predictability and stability.

When properly managed, public defined benefit pension plans are indeed sustainable. They must be carefully monitored however, since the temptation to skip funding during the early phase of the plan, when retiree expenses are insignificant and the employee contributions steadily feed the trust fund, is often too great to resist, as the SRHS case clearly illustrates.

Finally, there’s his bizarre attempt to again deplete the fund early into the 57-year life of the plan which naturally makes the entire program unsustainable later on. Regardless of the desire of the SRHS leadership to cap their support for the plan at the lowest possible figure, the System will need to squeeze as much as possible from the very beginning to maximize the investment returns of the fund and keep their future payments to the plan achievable.

Mr. Guice uses in his demonstration SRHS payments of $1.2 million annually for the period 2016-2019 and $3 million per year for the 2020-2031 period, which raises the contribution requirements from 2032 afterwards to unattainable levels.

To give a more reasonable probability of success to the 100% funding quest, SRHS will need to provide substantial and consistent contributions from the outset. In this manner, investment returns would become a larger portion of the funding mix. A generous yet achievable annual $5 million payment starting and including 2015 would allow a much better likelihood for the plan to achieve the desired goal and would represent a reasonable ceiling for discussion purposes.

There’s no real reason why the System should be spared one more year from contributing to the plan. After all, SRHS had the opportunity to spread out the pain over more than thirty years, but irresponsibly chose to live large through those years at the expense of the very same pension plan they were selling as the crown jewel of their employee benefit package.

We must also take into account the fact that the Board of Supervisors could and should follow their commitment to quality healthcare in Jackson County with the appropriate funneling of funds to shore up SRHS operations, of course in exchange for a larger oversight role. After all, empty words without supporting deeds will not do the trick this time around.

I cannot ascertain whether introducing these changes to Mr. Guice’s scenario would allow sufficient latitude for the plan to be funded at the 100% level or not. I am sure, however, that It would stand a much better chance than with his assumptions and, if it would actually be able to support funding for the full benefit promised to every plan participant, it would merit consideration as a starting point for additional refinement opportunities with the objective of achieving a workable compromise.

If the Board of Supervisors wishes to actually demonstrate their commitment to finding the best solution for all stakeholders it should direct Mr. Guice to provide public access to the data supporting these scenarios so they can be tweaked until all reasonable avenues for achieving the 100% benefit goal have been publicly explored.

This is a very serious matter affecting all Jackson County citizens and as such deserves the best effort that our representatives, the Jackson County Supervisors, can muster. Silly attempts to mollify the righteous expectations of the pension plan participants are inappropriate, callous and devious and cast a large shadow of doubt upon their ability to lead Jackson County out of this nightmare.

Cisco Aguilar

07/22/2015