For states, financial icebergs loom (state pensions)

[Midpack]

Chicago Tribune

Not an in depth article, those interested have already read up, but a decent summary. We will all be impacted, maybe some more than others. Emphasis mine.

Quote:

In state after state, elected officials have promised public employees retirement packages without securing the revenue needed to keep the promises. In Illinois, the state pegged its contributions below where they should have been for a long time. On top of that, lawmakers couldn't resist the temptation to borrow from the fund and skip contributions whenever it was convenient. "Effectively, the state used the pension systems as a credit card to fund ongoing service operations," says the Center for Tax and Budget Accountability. The result is that now the state has large and growing obligations that exceed the money it has to cover them. But there is plenty of company in this misery. More than 40 states have grappled with government employee retirement obligations in the past few years, but "many of them have simply deferred pension costs to the future," reports The New York Times. "And none have come close to closing their pension gaps quickly enough to keep pace with a rapidly aging — and retiring — public workforce." Stanford University economist Joshua Rauh says that not only have the states not made progress on the issue overall, they have actually expanded the gaping canyon they dug. By his calculations, the distance between projected benefits and projected resources has widened from $3.1 trillion in 2009 to $4 trillion today. "I can't give you a good example of a state" that has closed the gap, another expert told the Times. But something will eventually have to be done, and the shape of that something is easy to discern. Either taxpayers will be compelled to hand over more of their earnings to the government or workers who accepted the terms of their employment in good faith will get royally hosed, or both. Barring some miracle that provides a windfall to pension funds, someone will be eating a steady diet of dirt sandwiches. Public pensions represent one of the biggest, worst and most inexcusable policy failures of our time. This is not like invading Iraq, where we might conceivably have created stability, or the financial meltdown of 2008, which surprised even the smartest experts. This is math, where numbers either add up or don't. The failure is the sort that gives shameless political pandering a bad name. Politicians can gain favor from public employees by accepting contracts that promise generous pensions. They can indulge other constituents by diverting the money designated for pensions to current programs. They can appease taxpayers by holding down taxes in the near term. They can also get re-elected over and over, knowing that future lawmakers and constituents will be the ones to pay the price.

And the answer seems inescapable, the cycle will not be broken on it's own, until we really hit a wall (some cities have already gone under). Until we stop electing political leaders who tell us what we want to hear - even though we can all see the math shows otherwise, the hole just gets deeper. "We" continue to reject candidates who give us the bad news straight, while complaining why "they" (the candidates we voted for who told us 'no worries') don't do something!

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Only an informed and alert electorate can prevent this kind of scam — and the complexity and dullness of the subject make such vigilance wildly implausible.

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So when it comes to public pensions, elected officials have arrived at a formula that suits them well: Never do today what you can do tomorrow. And don't do it then, either.

[nun]

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"I can't give you a good example of a state" that has closed the gap, another expert told the Times.

Maybe look at MA for recent retirement reforms and for a commitment to close the funding gap....the funding gap has closed each year since 2009.

https://www.bostonglobe.com/business...eCI/story.html

[aja8888]

Quote:

Originally Posted by nun Maybe look at MA for recent retirement reforms and for a commitment to close the funding gap....the funding gap has closed each year since 2009. https://www.bostonglobe.com/business...eCI/story.html

Guess who is paying for the state's shortfall:

"The state and many local pension funds across the Commonwealth extended their target dates to fully fund obligations by as much as 15 years — to 2040 — after suffering serious investment losses in 2008 and 2009.
But extending the target date for full pension funding is expensive, too.
Those delays could cost taxpayers as much as $26.4 billion, according to a new report by the Pioneer Institute, a Boston think tank."

[nun]

Quote:

Originally Posted by aja8888 Guess who is paying for the state's shortfall: "The state and many local pension funds across the Commonwealth extended their target dates to fully fund obligations by as much as 15 years — to 2040 — after suffering serious investment losses in 2008 and 2009. But extending the target date for full pension funding is expensive, too. Those delays could cost taxpayers as much as $26.4 billion, according to a new report by the Pioneer Institute, a Boston think tank."

As public employees the tax payer has to pay for the benefits. However, there have been significant reduction in these pension benefits within the last year and MA state employees must contribute 11% of salary to the pension plan with the state contributing 5%.

[gcgang]

Buffett says more bad news on pension funds during next decade | Reuters

Warren Buffet, on March 1, 2014, weighed in on this again.

Saying that understanding the true costs of pension obligations is difficult even for professionals, he goes on, "citizens and public officials typically underappreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them."

Basically, it has been easy to make promises for things someone else has to pay for. Unfortunately, it's getting to be time to pay.

[imoldernu]

"Tapeworm" ...never better a description!
Better than "kicking the can".

So far, "States"... Scarier, your local government. Any idea what the pension obligations are, where you live?

http://www.pewtrusts.org/uploadedFil...ons_report.pdf

[pb4uski]

Just read this on the topic earlier today from WSJ Weekend.

http://online.wsj.com/news/articles/...19371878171830

Glad I don't have any state/muni bonds in my portfolio. I think I now understand why muni yields look so attractive compared to taxable, especially if you are in a high tax bracket. While I owned munis when I was working, they no longer make sense for me and this editorial was the icing on the cake.

My fear is that unless the economy improves/grows that these obligations may cause the next great recession calamity.

[nun]

Chronic underfunding of pensions by stats obviously pushed a large liability into the future. I am not sanguine about the assumed returns by the MA state pension scheme, but the legislature is making additional contributions to the fund so the deficit is shrinking. The pension date has also been increased for new employees. Too often public pensions are attacked for idealogical reasons when sensible adjustments can preserve them for hard working people.

[ERhoosier]

I fear Detroit is only the tip of the iceberg. Various court rulings related to that case may ultimately affect tax payers, investors, & pensioners in ways few today might predict.

[LongPrime]

In Oregon, The Legislators and Courts are members of PERS. Legislators gave Courts a kicker. No conflicts of interest and to heck with good actuarial and investment plans. So far voters have frozen budgets of some counties (mine) and suffer reductions of public safety and jails. If property taxes increase and state income taxes start impacting my retirement outlook-I'm moving .

[check6]

Freeze or reduce the pension of current employees. It happens all the time in the civilian world. My mega corporation did it to me before I retired and it was significant hit to the tune of $1.6K/mth for life.