Public pension funds face real funding challenges in a majority of states.
In fiscal year 2010, public pension funds as a whole were only 75 percent funded and had a shortfall of $757 billion between what they should have set aside to pay for the benefits promised to workers and retirees and what they had on hand. While some states, like New York, North Carolina, and Wisconsin, have well-funded and well-managed plans, the majority of states face significant challenges. Thirty-four states were less than 80 percent funded -- a threshold many experts recommend for health pension systems.
This problem is the result of a decade of states taking pension holidays and raising benefits without paying for them, not the Great Recession. Investment gains of 20 and 13 percent in 2009 and 2010, respectively, were not nearly enough to overcome losses from the financial crisis, and pension funding levels continued to drop. The weak returns of less than 1 percent at the end of 2011 also show how hard it will be for states to invest their way out of this crisis. Initial projections suggest that funding levels will be stagnant in fiscal year 2011, and in some states will continue to drop...
Thursday, August 9, 2012
The Truth About the Coming Public Employee Pension Crisis
Even HuffPo gets it:
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They get some of the problem but miss the huge fact that all of them use an actuarial return rate that far exceeds their long term average. Using an 8% return vs a more realistic 2-3% return can drastically change the funding level of a pension. Also ignored is that nearly all of these pensions have a guaranteed COLA increase of 1-3% which means that even a decent 6% return is far less when you subtract out the automatic COLA amts paid out. I have had this conversation with two local government union bosses and both at different times stated that they fully expect and will demand that the public be taxed to make up the shortfall. Their common retort is "a promise is a promise". And, when I ask them what about the promises made to private sector workers that are later broken when their employer goes bankrupt, they'll tell you that's why they work for the government since it always has a way to get the money it needs -- just like your average armed robber. Anyone that thinks these guys have anything in common with your average private sector union worker is deluding themselves. These guys are in a very different league.
ReplyDeleteYou make a vital point. Actually a few.
DeleteThanks.
I don't know how New York's plan can be considered well-managed:
ReplyDeletehttp://tinyurl.com/9mhdt3k
Yeah, that tweeked me too.
DeleteOh, it's HUFFPO!
In the battle for the loot between current govt employees and the pensioners who'd you think will have the upper hand?
ReplyDelete"In the battle for the loot between current govt employees and the pensioners" I would like to see them battle it out with machetes.
ReplyDeleteHave you noticed how the gunverment cheerleaders are always cautious not to offend the rats-in-the-bureau by relying on such newspeak as:
ReplyDelete... the majority of states face significant challenges.
... a threshold many experts recommend for healthy pension systems.
... how hard it will be for states to invest their way out of this crisis?