Getbig.com: American Bodybuilding, Fitness and Figure
Getbig Main Boards => Politics and Political Issues Board => Topic started by: Soul Crusher on February 16, 2012, 08:30:20 AM
-
February 16, 2012
The State and Local Pension Crisis
By Diana Furchtgott-Roth
WASHINGTON-President Obama's new budget, with its trillion dollar deficit and interest payments of $5.6 trillion on the debt over the next decade, is only part of America's unfunded liability.
The state and local pension crisis is the subject of a new report by the Republican staff of the U.S. Senate Committee on Finance, entitled "State and Local Government Defined Benefit Pension Plans: The Pension Debt Crisis that Threatens America."
Senator Orrin Hatch, a Utah Republican and ranking member of the Senate Finance Committee, said last month, "Today, public pension debt stands at an alarming $4.4 trillion with outstanding state and local municipal debt at nearly $3 trillion. The public pension crisis plaguing our nation demands a real solution."
The Hatch report shows that the unfunded pension liabilities of state and local governments have been rising. Mr. Hatch plans to bring forward a series of proposals to reform public pension plans over the next few weeks.
By law, these pensions will have to be paid over time to the 19 million men and women who work for state, county, school district, and municipal government. The Hatch report warns that if pension fund income is insufficient to cover these obligations, they will have to be paid also by the taxpayers, either of the respective states or-possibly-by all of us, if Congress decides to ride to the rescue.
The latest estimate of unfunded pension and healthcare obligations for state and local government, $4.4 trillion, comes from Josh Rauh, a finance professor at the Kellogg School of Management at Northwestern University.
In 2009, Professor Rauh estimated $3 trillion in unfunded health and pension liabilities, based on Treasury bond yields ranging from 4.4 percent for 30-year bonds to 2.6 percent for 5-year bonds. Now yields are one-and-a-half percentage points lower, implying that liabilities are 23 percent higher, assuming a duration of 15 years. In either case, cities and states will not have adequate revenues to meet their obligations.
For many years a growing economy propelled increases in stock prices, enhancing the coverage of many pension plans, public and private. But stocks have not fully recovered from the market's collapse in 2007-2008. Prudent planning cannot assume that stocks will resume their prior course, and so the problem must be examined, and a prudent mid-course corrections must be devised.
Funding levels of state and local pension plans began deteriorating in 2000 with the popping of the dot-com boom. Now, the Pew Center on the States, a nonpartisan research organization based in Washington, estimates that 31 states have funding levels below 80 percent of full coverage.
An increase in unfunded liabilities could not have come at a worse time for state and local governments already staggering financially. Many states not only face record operating deficits from the recession, but they are looking at a potential expansion of Medicaid obligations when health reform is fully implemented in 2014. And, to balance their budgets, they have been laying off employees, thereby shrinking the number of people paying into their respective pension funds.
There is no tidy approach to resolving these problems. The states are essentially autonomous. Congress does not regulate their pension operations. The Employee Retirement Income Security Act, enacted in 1974, applies only to private-sector pensions.
Rather, state and local pension funds operate under guidelines of the Government Accounting Standards Board. It is essentially a federally-sponsored, private-sector advisory body, without enforcement power.
In the private sector, gains and losses of pension funds must be smoothed over seven years under the Pension Protection Act of 2006-ten years when requested by the plan's administrators. By contrast, in the public sector, gains and losses may be smoothed over 30 years.
This means that public funds can incur greater near-term deficits than private plans, because projected gains 30 years hence can be used to offset near-term losses, at least on paper.
The disparity raises a question as to whether the states and cities need to be held to a stronger discipline, according to the Hatch report.
Even states that are making large contributions to their pension plans find themselves in difficulties. Rhode Island and Utah both contributed the amounts suggested by the Government Accounting Standards Board, yet both have plans that are seriously underfunded.
Although private plans can reduce employee benefits and increase contributions to bring underfunded plans into financial health, many public sector plans have been prohibited by the courts from doing this. New employees can be charged a higher contribution rate for lower benefits, but not current employees who were hired under more favorable terms.
Underfunded public pension plans are legal obligations of the state, and have to be paid either with taxpayers' dollars, or with increased contributions from new state employees, or both. State and local tax rates will have to rise to pay for this.
Some analysts think that the problems are so severe that the federal government will end up bailing out the states. That's one reason, according to Standard and Poor's, why the ratings agency downgraded the U.S. government's debt in August, 2011.
Ratings agencies believe that Uncle Sam will step in because about 5 million state and local government workers are not covered by Social Security. Therefore, if their pension plan goes bust, they would have nothing except their own savings.
What can states do? The Hatch report reviews some options, and will publish more in coming weeks.
One option is to gradually raise the retirement age. Right now, in many states, you can retire at age 50 and start collecting benefits. State could allow workers to retire at the same age but postpone the age at which workers begin to collect benefits. Of course, that would cause some employees to keep working, adding to their eventual retirement benefit.
As it is now, many workers retire, collect benefits, and get another job.
States could also convert pension plans to defined-contribution plans, such as 401(k) plans in the private sector, which have been gradually displacing corporate defined-benefit pensions.
Plans can be closed to new entrants while retaining existing employees. Or, a plan could be closed to new employees, and present workers can be moved to a defined-contribution plan. In either case, the state remains responsible for liabilities of present retirees and the future benefits owed to current workers.
States have a responsibility to workers to disclose the condition of their pension funds, using realistic assumptions. If interest rates are low, it is imprudent to gloss over the weakness of the plan by assuming high, future rates of return.
Of the utmost importance is preventing the state and local pension crisis from becoming a further drag on the federal government. Mr. Obama's budget shows that Uncle Sam is in no position to fund states' liabilities.
Diana Furchtgott-Roth is a contributing editor of RealClearMarkets, a senior fellow at the Manhattan Institute, and a columnist for the Examiner.
-
Ironically, only a smaller federal government could solve this problem. By drastically cutting spending and taxes Ron Paul-style, that would leave more leeway for state and local governments to raise revenues in order to meet their obligations.
-
Ironically, only a smaller federal government could solve this problem. By drastically cutting spending and taxes Ron Paul-style, that would leave more leeway for state and local governments to raise revenues in order to meet their obligations.
I think its way too late TBH. I know a lot of cops who are slated to get 75-100k plus pensions a year for life at 45 y/o and they think there are no problems whatsoever w this situation.
Public workers are worse than welfare parasites because at least welfare parasites are what they are. The public sector maddoffs actually think they are doing something good for society.
-
Broken Promises: Pensions All Over America Are Being Savagely Cut Or Are Vanishing Completely
The Economic Collapse ^ | 03/12/2012 | Michael Snyder
Posted on Wednesday, March 14, 2012 10:51:32
How would you feel if you worked for a state or local government for 20 or 30 years only to have your pension slashed dramatically or taken away entirely? Well, this exact scenario is playing out from coast to coast and in the years ahead millions of elderly Americans are going to be affected by broken promises and vanishing pensions. In the old days, things were much different. You would get hired by a big company or a government institution and you knew that the retirement benefits that they were promising you would be there when you retired in a few decades. Unfortunately, we have now arrived at a time when government institutions and big companies have promised far more than they are able to deliver, and "pension reform" has become one of the hot button issues all over the nation. Many Americans that have been basing their financial futures on their pensions are waking up one day and finding that their pensions are either gone or have been cut back dramatically. According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars. America is continually becoming a poorer nation and all of that money is simply not going to magically materialize somehow. So where is that 4.4 trillion dollars going to come from? Well, either pension benefits are going to have to be cut a lot more all over America or taxes will need to be raised dramatically. Either way, we are all going to feel the pain of these broken promises.
There simply is not enough money out there to keep all of the pension commitments that have been made. Something has got to give. In the end, millions of elderly Americans will likely be plunged into poverty as pensions disappear.
Some local governments around the nation are already declaring bankruptcy and are either eliminating pensions or are cutting them very deeply. Just check out what just happened in Central Falls, Rhode Island....
For years, city officials promised robust union contracts and pensions without raising revenue to pay for them. Last August, the math caught up with them. Central Falls was broke, its pension fund short $46 million. It declared bankruptcy.
"My daughters grew up here, went to school here. It's all gone," said Mike Geoffroy, a retired firefighter.
He said he could not make the payments on his house after his pension was cut by $1,100 a month.
When will the math catch up with the city where you are living?
For years and years most of our state and local politicians have been ignoring this problem. But eventually a day comes when you simply cannot ignore it any longer.
Check out what Pensacola Mayor Ashton Hayward said about the situation in his city recently....
"When our annual pension liability is more than our yearly property tax revenues, we have to do something"
Keep in mind that taxpayers don't get any new services for money spent on pensions. It is money that goes straight into the pockets of retired workers. State and local governments are desperately trying to pay retired workers what they are owed and fund ongoing government functions at the same time, but many have reached the breaking point.
All over the country, state and local governments are going broke. The following is from a recent article by Duff McDonald....
Alabama's Jefferson County has actually gone bankrupt. Stockton, California is all but ready to do the same. And all you have to do is look to Detroit—or any of the nearby auto towns named after a Buick model of one sort or another—and you see fiscal crisis playing out right now. Look in your own backyard—or at the potholes on your neighborhood roads—and you will likely find the same.
Things are so bad in Stockton, California that they are actually skipping debt payments....
The city of 290,000 that rode the wave of the housing boom in the late 1990s and early 2000s now finds itself littered with foreclosed homes, saddled with pension, health care and other obligations it can't afford, and unable to pay its bills.
The City Council voted last month to suspend $2 million in bond payments and begin negotiations with bond holders, creditors and unions.
And did you notice what is being blamed for the financial problems in Stockton?
Pension and healthcare benefits.
Sadly, we are seeing pension nightmares erupt all over the nation right now.
For example, check out what is happening to the Public School Employees' Retirement System and State Employees' Retirement System in Pennsylvania....
PSERS had an accrued unfunded liability of nearly $26.5 billion, the amount of money the fund is short to cover existing retirement benefits. That hole is expected to grow to $43 billion by 2019. SERS is $12.5 billion in the red, and that shortfall is expected to climb to nearly $18 billion by 2018. Unless the stock market makes giant sustained gains, taxpayers will have to refill those funds.
That doesn't sound good at all.
In California, the Orange County Employees Retirement System is estimated to have a 10 billion dollar unfunded pension liability.
How in the world can a single county be facing a 10 billion dollar hole?
This is madness.
The state of Illinois is facing an unfunded pension liability of more than 77 billion dollars. Considering the fact that the state of Illinois is flat broke and on the verge of default, it is inevitable that a lot of those pension obligations will never be paid.
In fact, there are going to be a whole lot of broken promises all over the country.
Pension consultant Girard Miller told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities.
That comes to about $22,000 for every single working adult in the state of California.
So where is all of that money going to come from?
But at least most state and local government employees are still covered by pension plans, even if they are failing.
In the private sector, pension plans are vanishing at lightning speed.
According to the Boston College Center for Retirement Research, the percentage of workers in America covered by a traditional pension plan fell from 62 percent in 1983 to 17 percent in 2007.
That isn't just a trend.
That is a tidal wave.
And many of the private pension plans that still exist are massively underfunded. For example, Verizon's pension plan is underfunded by 3.4 billion dollars.
So what should Americans do in light of all this?
Well, the number one thing to realize is that the pension plan you have been counting on could disappear at any time.
We live in an economic environment that is extremely unstable, and about the only thing you can count on in this environment is rapid and dramatic change.
Do not plan your financial future around a pension plan. If you do, you are likely to be bitterly disappointed.
Americans that plan to retire in the coming years should do their best to try to fund their own retirements.
Unfortunately, most Americans are not putting away much of anything for retirement. As I have written about previously, one study found that American workers are $6.6 trillion short of what they need to retire comfortably.
Ouch.
Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day.
A lot of them are going to be blindsided by empty pension funds and broken promises.
We are facing a retirement crisis of unprecedented magnitude, and there is not much hope in sight.
And if there is a major stock market crash, things are going to be much, much worse.
Most pension funds and retirement plans are heavily invested in the stock market. If we were to see a major financial crisis like we saw back in 2008 it would be absolutely devastating. Millions of Americans could see their retirement plans wiped out in short order.
Once again, please do not place your faith in the system.
If you do, you are likely to end up holding a bag of broken promises.
A gigantic tsunami of unfunded pension obligations is coming. A lot of state and local governments are going to go broke. A lot of promises are going to be broken.
If you hope to retire any time soon, you better plan on being able to take care of yourself.
-
-
I think its way too late TBH. I know a lot of cops who are slated to get 75-100k plus pensions a year for life at 45 y/o and they think there are no problems whatsoever w this situation.
Public workers are worse than welfare parasites because at least welfare parasites are what they are. The public sector maddoffs actually think they are doing something good for society.
Good point. That's why we'll have to fight their unions tooth and nail.