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Are States' Pensions the Next Crisis?
Virginia's News & Advance reports, Are States' Pensions the Next Crisis?:
Just as America is finally showing signs of digging out of the financial meltdown and the Great Recession of 2008, there are already warning bells being sounded for the next possible scare: government pension programs.
Earlier this week, the Pew Center on the States issued the results of its “fiscal stress test” of the 50 state pension programs, and the results are troubling to say the least.
All told, the Pew center estimates that government pension funds and health care programs are underfunded by more than $1.2 trillion today, a clear sign that something must be done now to avoid a great deal of misery down the road.
Though the Pew study looked at pension funds during 2008 and 2009, the depth of the Great Recession, the results should serve as a wake-up call to political leaders across the nation, including here in the Commonwealth of Virginia.
The Pew center reports that 31 states are funding their government pension funds at levels below the point most experts consider safe, 80 percent of the plan’s expected needs.
Several states — California, Illinois and Ohio are among the worst — have shortfalls dangerously below safe levels. Illinois, the worst state, has only 51 percent of its plan’s projected needs currently funded.
Here in Virginia, while we’re not as bad off as some, there’s not much to be proud of.
The Virginia Retirement System, with about $56 billion is assets, currently has a projected shortfall of $17.6 billion. While that doesn’t mean that VRS, the source of retirement income for thousands of state and local government workers, is in any danger of becoming insolvent, it’s not a sign of long-term health.
Leaders of the General Assembly and the governor recognize the long-term problem of underfunding the VRS, but that hasn’t stopped them from dipping into the plan’s reserves in the past to cover holes in the commonwealth’s budget.
Such was the case during the 2010 session of the Assembly, when more than $620 million was shifted from the VRS coffers to the General Fund in order to balance the budget.
The Assembly promised to repay the VRS, with interest, but, to date, their promise remains just that: words.
Virginia’s not alone in “borrowing” from its pension funds, according to the Pew study. Many states decided to skip their payments to their employees’ pension plans in order to shore up their current cash reserves.
But what they don’t want to admit is that, sooner or later, the bill will come due. And the longer they wait, the higher the bill will be.
There is still time for state leaders, here in Virginia and across the country, to own up to the magnitude of the problem and take the actions needed, whether that’s cutting benefits or raising taxes and cutting spending in other areas to cover their obligations.
And they need to do it sooner rather than later.
You can read details on the Pew study by clicking here. Below are the highlights on The Trillion Dollar Gap Growing Wider:
The gap between the promises states have made for public employees’ retirement benefits and the money set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009—a 26 percent increase in one year—according to a Pew report.
The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs analyzes 2009 and 2010 data on states' funding of pensions and retiree health care. The report shows how states’ retirement systems—many of them already on shaky ground—were affected by the Great Recession:
- Pension funding shortfalls accounted for $660 billion of the $1.26 trillion gap, and unfunded retiree health care costs accounted for the remaining $635 billion.
- States had only about $31 billion, or 5 percent, saved toward their obligations for retiree health care benefits.
- State pension plans were 78 percent funded, declining from 84 percent in 2008.
The decline in states' funded status isn't shocking. Assets got hit during the financial crisis and liabilities exploded up as interest rates hit historic lows. It's important to remember that funded status will vary considerably year-to-year but swings a lot less over a four-year period. It took pensions many years to recover after the tech meltdown back in 2000, and this time it will take longer.
The problem now is that state pension funds still hold onto rosy
investment assumptions, still use a high discount rate and states are
still not topping up pension plans, increasing the retirement age and
contribution rate or cutting benefits. Sooner or later, the chicken will
come home to roost. Nonetheless, I don't buy all the fear mongering
going on right now, all in an effort to weaken traditional
defined-benefit plans. US state pensions need to be reformed, and new
governance standards need to implemented at many state plans, but let's
not blow things way out of proportion. This isn't the next crisis and
anyone who thinks so is completely out to lunch.
investment assumptions, still use a high discount rate and states are
still not topping up pension plans, increasing the retirement age and
contribution rate or cutting benefits. Sooner or later, the chicken will
come home to roost. Nonetheless, I don't buy all the fear mongering
going on right now, all in an effort to weaken traditional
defined-benefit plans. US state pensions need to be reformed, and new
governance standards need to implemented at many state plans, but let's
not blow things way out of proportion. This isn't the next crisis and
anyone who thinks so is completely out to lunch.
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10 years of artificially-low interest rates/dollar debasement/large bank circle jerk credit-money creation have soured many parts of the economy. Wouldn't the economy be in better shape if honest investments in industrial and commercial enterprises had a fighting chance to compete with bankster Ponzi schemes?? BTW these state pension fund guys are favored marks of PE hotshots, you gotta soften up the mark before ripping him off....
(2nd Computer fart)
(Computer fart)
No, but they're in the queue.
I am guessing these plans are in far deeper holes than even this study claims. Just a quick look at a few of them show they are all likely claiming far higher rates of return than will be ever possible going forward, and the states will continue to steal from them. The workers have sold their labor for an empty promise from politicians and union officials.
You think. Last year there were small blurbs in the media about most of these being 20-40% out.
Now most of them are getting hit with a mixture of COLA, inflation on real core items (food/energy) and of course a quickly depreciating US dollar. So most of the pension fund are stuck in a catch 22 position that they can't sell or they take a hit, even then who would they sell too that isn't over leveraged to the point the check is going to bounce. Additionally the asshole that pulls the trigger first is the only one that wins.
It's a bad situation that only ends with all pensions, except the one that fires first, either defaulting in some way or another. Ponzi schemes always end the same way no matter tha language used to dress them up or the office that runs them.
I wonder how much of the money was invested in MBS to get that higher rate of return. Hard to imagine the people running these are more savvy than than those rubes in Iceland.
The rubes are the ones who invested in Iceland
State, city and soon to be federal have been on the chopping block for a while Leo.
http://www.msnbc.msn.com/id/42767885/ns/business-us_business/
To stop the pension proliferation the world then turns to temp workers.
http://www.marketwatch.com/story/us-employers-shift-to-temp-workers-2011...
But it doesn't matter anyway, even if they did pay them. the checks bounce.
http://www.marketwatch.com/story/us-gets-c-credit-rating-lower-than-mexi...
Whew, I thought electing Jerry Brown and Pat Quinn as governors was a mistake, but every thing's fine after all. They don't need those special interests and their money like Republicans do.
If you read the entire frickin' article, California is more funded than most states. Yes, read, don't assume. Of course, if you just read the bold part (which says that California is among the "worst" states) or you read this articles only to confirm your existing bias about California, you would think we're worse than a majority of states.
Okay, you are now free to go back to your regular programming.
Their pensions are better funded, but they keep adding on tens of billions in debt each year to keep the gravy train rolling. It's called kicking the can down the road
How much cumulative wealth was looted from California during those heady Enron days?
I wonder how many hospitals have had to close directly because of Enron?
Another fake crisis.
Cut off the banker-gangsters, and use the money for more important things. Fuck them ... and then tax them to the hilt for their stupid, 1000x leveraged bets with government money.
Crisis averted.
Rather, a deepening of the crisis as the can is kicked further down the ravine. All this promised debt will be scooped up by TPTB to preserve those precious balance sheets. Deflation is their enemy and they will print it into oblivion. The setup for hyperinflation in real time...
Debt promised to whom? By whom?
Much promised to China, Japan, Brazil, etc. Now, the majority is monetized down the road a piece to the new #1 buyer of those long bonds, led by the man with the golden 'tongue' (when Ben speaks, gold listens).
'By whom?' We all know whom is lowest on that totem pole..
Yes a fake crisis just like the mortgage meltdown, $15 trillion debt, and unemployment. Everything is just fine and rosy. Keep the band playing and full speed ahead on the USS Titanic.
If the masses resign themselves to perpetual servitude to those you suck off every day, sun tzu, perhaps. But people aren't as dumb as banker-gangsters. The con will only go on so long.
But in the real world, the banker-gangsters don't have to see a god damned penny. Zero their accounts out, and seize their assets. Hell, they're insolvent anyway!
So it's a few less hookers, and a few less drug binges for ignorant twenty-somethings. You may care deeply about that, but in reality that's about all that will change.
You seem to have an infatuation with hookers. Your insane and ignorant rants are pathetic. Getting rid of the bankers won't save the ponzi schemes the government is running. Maybe if you get your head out of your ass and allow some oxygen into that peanut brain of yours, you would have a better understanding of the issues instead of your infatuation with hookers.
Don't forget the drugs. Because I'm totally wrong about the banker-gangsters and drugs, aren't I?
Completely making it all up, right?
"Now, back to the opium den for a bit more untaxed gambling at 1000x leverage with public money," says 'sun tzu'.
you mean "crisis accelerated" rignt?
It depends on how you define "crisis". It will bring the rule of banker-gangsters closer to an end.
Obviously that's the worst thing in the world for their servile little toadies, like 'sun tzu'.
Bravo! The only just solution. Yet the sheeple keep fighting each other. Divide and conquer with fake parties so the the fraud can continue. Nothing changes until the fraud is prosecuted or it gets real bloody.
Hedge accordingly.