Maui Pension Shortfall

[Running_Man]

Maui budget crisis has begun | News, Sports, Jobs - Maui News

Maui has had a very generous pension plan for it’s government workforce, not unlike many other public pensions it is underfunded, and now the increases in revenue from citizens of Maui are streaming to pay former employees.

The interesting part of the article is that the fund is 12.4 BILLION underfunded and the contribution is only 36 million and yet they state this will help fund the pension. Either the unfunded liability is wrong or the contribution is wrong because a 3/10 of one percent of an underfunding being paid into a pension fund cannot even possibly keep the fund from falling further behind.

I know from other stories that instead of making any money in this recent runup in equity prices the Maui pension fund was actually down 1% year over year as of June 30, 2017. If I understand correctly they have 9 billion in assets and 12.4 in unfunded liabilities. A six percent return on their fund last year would have brought 540 million dollars, instead they lost 54 million and 36 million in contributions are bringing it back on track for the future?

I wonder about pension calculations and how these things are supposed to work out long term with history like this with pension managers that sugar coat the reality that future retirees of Maui are facing.

 

[Sunset]

So based on 2016 population this shortfall amounts to a debt for each person of: $74,976.12

This is a lot higher than the famous IL pension debt per person of $11,920.44
(which may be higher pp as the population has declined since 2016.
($152,600,000,000÷12,801,539)

Seems like Paradise is going to get a lot more expensive once someone realizes the tiny increase in taxes won't fix the issue.

 

[king smoothie]

The contribution number is the county's contribution. The 12.4 billion underfunded is the state pension plan that the county participates in.

 

[gcgang]

Thanks for the article. I wasn't aware of the Grassroots organization that wrote the article, but they look like something I can support (my estate attorney is on their board).

I've not ventured into Hawaiian political/economic issues much in my 5 years on Maui, but overregulation and excessive entitlement seem pervasive.

 

[Koolau]

Thanks for the article. I wasn't aware of the Grassroots organization that wrote the article, but they look like something I can support (my estate attorney is on their board).

I've not ventured into Hawaiian political/economic issues much in my 5 years on Maui, but overregulation and excessive entitlement seem pervasive.

Yeah, it's difficult not to get political about the subject, but suffice to say that a one party system is rarely a good way to run a gummint. I look around "my" Island and see the same kind of short-sightedness and "kick-the-can" mentality and just wonder what it will mean to my ER. The good news is that, currently, I pay very little in state taxes due to the exemption of SS and employer-provided payments to retirees. I look for that to change which could cause me to reconsider my State of residence. I hope it doesn't come to that. Heh, heh, I should stop now before I go too far.

 

[43210]

Maui has had a very generous pension plan for it’s government workforce, not unlike many other public pensions it is underfunded, and now the increases in revenue from citizens of Maui are streaming to pay former employees.

There is no such thing as an "underfunded" pension. The correct word is overpromised.

 

[jazz4cash]

The contribution number is the county's contribution. The 12.4 billion underfunded is the state pension plan that the county participates in.

That's what found confusing. They kept switching between state and county data without explaining the relationship. Not sure what is the county's share of 12.4B.

 

[Sunset]

The contribution number is the county's contribution. The 12.4 billion underfunded is the state pension plan that the county participates in.

That would make it not nearly as bad,

12,400,000,000 ÷ 1,428,557 = $8,680.087 owed per person

Looks like IL will keep it's reputation

 

[Running_Man]

Kaanapali development met with resistance from Maui residents - Hawaii News Now - KGMB and KHNL

Of course maybe the reason the pension fund is not having positive returns is because they view themselves as business moguls, they are investing 370 million dollars to create a golf course.

 

[gcgang]

Kaanapali development met with resistance from Maui residents - Hawaii News Now - KGMB and KHNL

Of course maybe the reason the pension fund is not having positive returns is because they view themselves as business moguls, they are investing 370 million dollars to create a golf course.

Pension funds have many investments that typical FIREs do not, including real estate and private equity. The golf course came into the pension fund as collateral for a failed investment many years ago. They don't currently make money on the golf course. Pension is trying to make money on this property by developing it. So I wouldn't call them business moguls creating a golf course.

Attitudes toward development, of almost any kind, on Maui make it a very long, expensive, and IMHO, very unlikely thing to occur. They'll probably be stuck with no return on that asset.

 

[Running_Man]

Pension funds have many investments that typical FIREs do not, including real estate and private equity. The golf course came into the pension fund as collateral for a failed investment many years ago. They don't currently make money on the golf course. Pension is trying to make money on this property by developing it. So I wouldn't call them business moguls creating a golf course.

Attitudes toward development, of almost any kind, on Maui make it a very long, expensive, and IMHO, very unlikely thing to occur. They'll probably be stuck with no return on that asset.

Well whatever they paid to get the land they are spending another350 million open shops upscale apartment buildings and a 50 unit low income housing unit for workers. Seems like the kind of investment where money is no object to me, but
hey maybe this is a prudent use of a retirees future income

 

[AndyS]

Well, maybe they can legalize recreational pot & use the tax revenue to fund their public sector pensions?

(of course, based on my observations on my last visit to "The Islands" ... they might garner more revenue taxing meth?)

 

[43210]

Well whatever they paid to get the land they are spending another350 million open shops upscale apartment buildings and a 50 unit low income housing unit for workers. Seems like the kind of investment where money is no object to me, but
hey maybe this is a prudent use of a retirees future income

Since taxpayers can always be called upon to make up any shortfall, they are free to squander the funds however they like.

 

[MichaelB]

Snarky comments in pension discussions are unhelpful.

 

[gcgang]

$350-370mm is what estimates say the value of the project is. It is NOT the amount the ERS would invest. They want to do this because this development would MAKE MONEY for the ERS, like any other RE developer, mostly by converting one of the golf courses to real estate sales.

The ERS says they've chosen this development option, RATHER THAN JUST SELLING THEIR PROPERTY TO AN OUTSIDE DEVELOPER, because they would have an input into how the land is developed, being good stewards of the land for the Hawaiian people.

 

[Chuckanut]

Well, maybe they can legalize recreational pot & use the tax revenue to fund their public sector pensions?

(of course, based on my observations on my last visit to "The Islands" ... they might garner more revenue taxing meth?)

It might work but many states are getting greedy and have raised taxes on legal pot to the point that illegal pot is worth the risk. Sort of like what happened with cigarettes when some states taxes them to the point they were worth smuggling.

The law of unintended consequences strikes again!

 

[RenoJay]

I didn't see in the article anywhere where it mentioned the time period of the $12.4 billion underfunding. It could be that that the $36mm is going in over four years (mentioned in the article) and the underfunding is based on an estimate over decades.

 

[NW-Bound]

A common measure for the funding shortfall is in terms of GDP. Using this, I looked up the GDP of the entire state of Hawaii as 62 billion. The short fall of 12.4 billion is 20% of GDP. How bad is that compared to other states, the entire country, other countries?

OK, here are some numbers.

All of US state pensions: 20% of GDP
All of US federal pensions: 20% of GDP
SS short fall: 75% of GDP
Medicare Hospital alone: 18% of GDP

If we talk about government pensions alone, then it's 40% for state+federal. How does that compared to other countries?

Canada: 12%
Australia: 21%
UK: 66%

If we add up everything, state and federal and throw in private pensions too, SS and all components of Medicare, we are up to our eyeballs in debt.

Source: https://www.moodys.com/research/Moo...adowed-by-Social-Security-Medicare--PR_346878

 

[Senator]

I wonder about pension calculations and how these things are supposed to work out long term with history like this with pension managers that sugar coat the reality that future retirees of Maui are facing.

Therein is the risk of working for Government entities. You get a large pension and many benefits, but the pension could be cut. In the private sector, you get laid off easier but possibly make more money.

I suspect that this pension, like so many others, will have to be cut. If it is protected in the constitution, the constitution may have to be changed. Taking a pension cut is no different than having your taxes raised, it still results in less disposable income. Worse case, I would think the pension fund could declare bankruptcy.

At least the weather is great there. Lanai is basically privately owned, maybe large portions of Maui can be sold to generate revenue?