The Public Pension Problem: It's Much Worse Than It Appears

[SirLinksALot]

SOURCE: MANHATTAN INSTITUTE

URL: http://www.manhattan-institute.org/html/public-pension-problem-its-much-worse-it-appears-9095.html

by Steven Malanga


When financial markets slumped in 2008, the assets in government-worker pension funds plunged and public sector retirement debt soared. Although pension officials rushed to assure the public that their funds would recover as soon as stocks rebounded, the long bull market that began the following year didn't do much to cut states steep retirement debt.

Now, 18 months of mediocre investment returns have sent the unfunded liabilities of state and local pension funds soaring to unprecedented levels and have raised new questions about whether some of these traditional retirement plans supported by tax dollars are sustainable.

Most state and local pension funds closed the books on their latest fiscal year on June 30, and during that 12-month period the bellwether Standard & Poor's 500 increased by less than half a percentage point. While many funds have yet to report their results for the year, early returns suggest that the industry fell well short of its lofty investment goals.

The nation's largest pension fund, the California Public Employees’ Retirement System, earned a mere 0.6% in the last year, significantly below its 7.5% target. Its sister fund, the California State Teachers Retirement system, which also aims for a 7.5% annual return, instead notched a 1.4% gain for the year.

The New York State and Local Retirement System, which ended its fiscal year on March 31, reported a gain of just 0.2% versus an investment goal of 7%. It's likely that other pension funds have similarly failed by a wide margin to hit their investment targets given that most government pension funds rarely perform significantly better than the broader market.

These disappointing numbers come on top of a substandard fiscal 2015, when pensions systems earned on average 3.2%, well below their average projections of 7.6% annually. In a March report Moody's Investors Service estimated that the 2015 investing shortfall increased unfunded liabilities at government pension plans by 17%.  Given that most funds likely performed even worse in the fiscal year that just ended, it's probable that debt increased again by at least 2015 levels, if not more.

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[Fishrrman]

At some point in the future, I sense that a considerable number of "public pensioners" from various states, cities, and counties are going to find their benefits cut, with little more than "take it or leave it" as a recourse...

[IsailedawayfromFR]

We need to keep the word 'public' in perspective.

A California pensioner needs this to work far worse than some others.

I do not wish them on the dole for my tax dollars.

[Jazzhead]

At some point in the future, I sense that a considerable number of "public pensioners" from various states, cities, and counties are going to find their benefits cut, with little more than "take it or leave it" as a recourse...

That's correct.   The private pension system has fared much better than public sector pensions,  the difference being ERISA.   Not only are private employers required to adhere to funding standards,  they can also can be far more proactive in freezing their pension plans and switching to options with more cost certainty.   

In some states,  government plan sponsors cannot abrogate the "promise" made to the employee at time of hire - if he was promised a pension plan,  that can't be taken away.

The ultimate solution will likely be a form of reorganization-type bankruptcy, where pensioners will have to take haircuts on the benefits they were promised.   

[SirLinksALot]

In some states,  government plan sponsors cannot abrogate the "promise" made to the employee at time of hire - if he was promised a pension plan,  that can't be taken away.

The ultimate solution will likely be a form of reorganization-type bankruptcy, where pensioners will have to take haircuts on the benefits they were promised.   

It's time to make public pension plans SIMILAR to private pension plans -- especially for younger government workers.

That's the only viable solution I can think of right now.

Otherwise, every citizen will be paying for this public pension plans even as they ran out of money.

[IsailedawayfromFR]

It's time to make public pension plans SIMILAR to private pension plans -- especially for younger government workers.

That's the only viable solution I can think of right now.

Otherwise, every citizen will be paying for this public pension plans even as they ran out of money.

It depends upon whether you are a payor or payee.

I believe as a payee you may be right.

As a payor like me, if I lived in an upside-down state like say Illinois, I would consider moving to another state to let someone else pay off the payees.