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Guest Post: My State Presently Owes Its Pension Funds $208 Billion What About Yours?
From Fred Cederholm of Financial Sense
Pensions: A New Crisis is About to Hit the Headlines
My State presently owes its pension funds $208 BILLION, what about yours?
I’ve been thinking about pensions. Actually I’ve been thinking about
the State of our Union, unemployment/ underemployment, working people,
Illinois obligations, dona/ gifts, defined benefits, defined
contributions, deferred compensation, and bankruptcy. We are about to
venture into major untested areas in 2011. There are a great many
problems facing US/ us, but the issue of pensions has not yet even been
put on the table of concerns for our consideration. That is going to
change in the very near future. Which state or city will be the first to
seek redress or forgiveness from obligations? What will be the areas of
forgiveness sought? When the first hits, many others will follow!
You
see on Tuesday evening President Obama will deliver his third State of
the Union message before the US Congress. We were told in advance that a
central topic was to focus on unemployment/ underemployment. The
officially released figures chronicle a 9.3% rate. This is nowhere close
to the reality. Uncle $ugar eliminates people from the rolls after a
“moving” defined period of time. Then, the assumption is made that such
people are no longer looking for work. Just last month 600,000 people
were dropped from the calculation for this reason… as were those who
took a part time job to replace the full-time one with whatever benefits
that they held. Re-considering these factors raises the rate to well
over 22% of our population being unemployed --- a rate not unlike the
Great Depression of the 1930’s. Obama will not address this number
manipulation.
We are “about” in the middle of a major economic
downturn. We have clearly not yet hit bottom, but Obama will not include
this in his address either. Our government
has refused to admit how there can be no recovery without job growth
and a return to a “fully” employed populace. The President may come
close, but the political “dancing” will preclude such an admission. The
myth of “the recovery” has to be continued. Right now spin, hype, smoke,
and mirrors are all they have going for them. As long as the public
buys it, they in the government have bought more time before any great
social upheaval.
People exchange their time and skills for some
form of compensation. This compensation includes wages, salaries,
bonuses, benefits, and pensions. Not all employment includes benefits
--- particularly pensions. In my 15 or so years in public accounting and
working for the government at the FDIC/ RTC, I was excluded from any
so-called pensions. I did pay into Social Security and IRA accounts and
will be able, GOD willing, begin to tap into these come December when I
turn 62. I am not unlike many of the workforce in this regard. But… this
is beyond the scope of my column for this week.
Federal, State,
and municipal governments are feeling the recession/ depression. This
is showing up in the deficits, and what and who they owe. Illinois is in
one of the worst positions nationally in this regard. Since they are on
the “cash basis” of accounting, there is no real chronicling of what
are presently the state’s accounts payables, or outstanding liabilities.
We have been getting some information in the media. The numbers keep
growing. And… we can speculate.
We know that Illinois has NOT been making the requisite payments
each year into the pension funds to meet the coming obligations. We
know that 16 years ago, under Governor Edgar, the pension funding was
current. We now know that the Prairie State is in arrears. The big Q is
what is the liability?
Last week, I was forwarded an analysis that
really set me on end. According to a report by the American Enterprise
Institute, public pensions are under funded by more than $3 trillion
nationwide. Illinois pensions alone are $208 BILLION UNDERFUNDED using
realistic measures. The overall level of funding is 29% --- the worst in
the entire nation. Illinois SERS pensions at 23% of funding is $36
BILLION in arrears, Illinois teachers pensions at 28% of funding is $98
BILLION in arrears, Illinois Universities pensions at 30% of funding is
$35 BILLION in arrears, Chicago Teachers pensions at 43% of funding is
S16 BILLION in arrears, and Illinois municipal pensions at 47% of
funding is $24 BILLION in arrears. To get this money, total population
and corporations of the state will have to be taxed. This will not occur
without a fight --- so Illinois is looking for an “out” from these
obligations and also what it owes schools, health care providers, and
nursing homes. Be prepared to get stiffed!
It will go to the
courts in 2011. States, unlike individuals and corporations however,
cannot just file for bankruptcy and just walk from what they (in theory)
owe. They will need special dispensations and approvals from the US
Congress. This is already being discussed in the halls of Washington, DC
and in the major law firms across this nation. Is there any precedent? A
central matter for the courts on these pension questions will be: were
these retirement benefits free gifts (dona) from the states and
municipal entities, were they from defined benefit plans, were they from
defined contribution plans, or were they really deferred compensation?
How these pension obligations are classified will greatly impact the
pension beneficiaries standing in the courts, and the final amount
actually owed.
Illinois governments have played fast and loose
with the pension monies in contract and labor negotiations. More and
more pensions were the bargaining chips used to negotiate down salaries
and wages. Promises were made for these future agreements to get labor
and services up front. Such considerations will also factor into any
settlement on the liabilities! Debate on these points will occur in the
courts, in the arbitration hearings, and in the streets. A central
question will be “should the entire general population be held liable to
provide for the retirement of the few in the employ of the governmental
units?”
Should all be required to pay for the benefits of those
few, when they themselves are not eligible for such levels of
“pensions?” Hummm…?
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.
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Dont know Macho--my point was they invested the funds in everything and allthethings. Heres Calpers.
http://www.calpers.ca.gov/index.jsp?bc=/investments/reports/home.xml
latest as 2009--as for corner the Ag market-probably wouldnt have been a bad idea.
I agree that the vast majority of the profession is completely fucking retarded. My problem is that, even for the knowledgeable professionals who are not conflicted and truly desire to sell their clients something other than what gives them the highest commission, they will still lose their shirts... Essentially, unless you have a seat at the magic palace, you need not do anything with your money other than wait for it to be inflated away.
Yes, please blame the correct source of this underfunded pension problem ! .......... these States & Cities knew years ago that this day was coming. First, they built the elementary schools for all the boomers, then, they expanded the universities; then, our SOCIAL SECURITY contributions were DOUBLED under ALAN GREENSPAN via the SOCIAL SECURITY REFORM ACT of 1983. Everyone knew this day was coming, that a very large section of our population would slow down & retire......governments knew it was coming & are ill prepared. who's really to blame ? WALL ST. Funny how that is so conveniently left out of the conversation. WALL ST. basically looted the pension funds & our U.S. TREASURY & the whole damn country.
Bee
Hush hush that word WALLSTREET..........................
The money managers looted and gambled everyones pension period.
Here's californias investment brilliance--lots of people need to go to prison.
https://www.calpers.ca.gov/mss-publication/pdf/xqPe5oXW2m1QU_2009-annual-investment-report.pdf
"whats the time?
it's time to get Ill
said, whats the time?
it's time to get Ill"
I feel bad for all the people in this plan. My sister has a pension with the TRS and I keep telling her to save outside the system. They have perpetrated a massive con on these people and got them to actually believe the money will be there. Not bloody likely.
I have yet to see any analysis of the huge, negative costs associated with ZIRP.
The critical mass of ignorance and delusion is remarkable.
Whoever came up with Benron - I love it!
look who's running the game. It's over. America is America only in name.
You all love to beat up on the helpless. You choose one example out of millions, which is probably true, and then transfer it to everyone.
This is dishonest and cowardly. The people who are receiving the benefits did not write the laws--those who did were elected by you.
This is another example of baby boomers and X-generations copping out; not taking responsibility. And then screaming in remorse about what is going on. Face it, girls, you are all to blame, man up.
You are so busy blaming (sp) the system that you do not realize that the system is U!
There are millions of little people who are receiving pittance benefits from their retirement. You duds and trolls don't know the facts, are screaming like a bunch of fucked little girls, and are reinforcing what the upper 5% think of you. Get a life.
Crooked contracts supported by bought and paid for politicians might be acceptable to your kleptocratic generation. Not by mine. You can eat that commie shit, not me. I'll vote with my feet. Pay for your own 'retirement.'
+100.
The 'greatest generation' taught the Boomers, the Boomers taught the X's, etc.
Stop pointing fingers and end this nightmare now.
What absolute trash. You're such a coward:
Instead of going after the military contractors who are reaping in billions for killing anyone with a turban, you attack the homeless and destitute.
Instead of attacking welfare queen banker-gangsters who have literally stolen trillions, you demand that libraries be shut down.
You piss in the face of your own grandmother rather than take on mortgage lenders who break into people's homes.
It's sad, really: you have no belief in the human race. Even more pathetic, the be-all of and end-all of social organization in your mind is the failed market system that has brought misery, destitution, and ecological holocaust.
O please. If THAT worked we could just hire all of our unemployed to go kill anyone with a turban. Pay 'em all a quarter million a year -- or else just pay 'em a thousand bucks for every head turned in. Solve the unemployment problem, the population problem -- why this is a totally "green" solution! </sarc>
Quoting Forgiven: " I'll vote with my feet. Pay for your own 'retirement.'"
Look around: moving is so easy to do. The smallest pension or SS check will enable you to live in contentment without fear. Why do millions of citizens just sit and subject themselves to ever more pain and suffering. What are you waiting for?
Hey, Atch, personally, I'm offended by your comment and junked you because I've been bitching and talking about the coming mess for years and years, so kindly GFY.
the "system" is going to collapse and the banksters and smart money know this
god's workers are going to collect on their derivative trades, and the public dolts are going to eat cake. i suppose they have some hope that the public can be raided to bail them out, but like i said that money is already spoken for and so it's time for the dolts to prepare to go to Plan B
is telling you to get screwed "coping out"?
then yes, i quess i'm copping out
Fred,
You should be doing more than thinking. You should be loading your moving van up and leaving that hell hole. Vote with your feet. Let the government retirees fund their own filthy lucre.
"The people who are receiving the benefits did not write the laws--those who did were elected by you."
And by them. Yeah, if they were working they were voting too.
This is another example of baby boomers and X-generations copping out; not taking responsibility
This is an example of ad hominem bullshit.
You are so busy blaming (sp) the system that you do not realize that the system is U!
Because this is a democracy where the people's will dominates public life and commerce right?
You duds and trolls don't know the facts.
Actually many here know all kinds of facts. Based on what you've posted, we can add a few more regarding the quality of your thinking.
Panel Spreads Financial Crisis Blame: Report
http://www.thestreet.com/story/10985108/1/panel-spreads-financial-crisis-blame-report.html
Here in Kansas (god help me), the House budget-writing committee just approved a proposal to cut state employees pay by 7.5% for the rest of the fiscal year (end 6/30). The $ "saved" will go to pay contractors working on building/maintenance projects at our institutions of higher learning. Said contractors have been told recently that they will be getting paid in vouchers and have been none too happy about it. I'm not a public sector employee but I would have a real problem with a 7.5% pay cut.
Zippity-farkin'-doo-dah, where's my ruby slippers?
The Austrian-school austerity ghouls don't care.
The bondholders at JP Morgue need theirs first. They're more important than you.
this I know and, thus, can take care of myself
Public-Employee Pensions Aren't That Big An Issue
We are former governors who served through times of both economic prosperity and deprivation, and our collective experience is that it is wrong to demonize public employees and the unions that represent them. In each of our states, the sudden and precipitous decline in economic activity caused by the Great Recession led to a sharp decline in revenues. We struggled with the difficult and often agonizing decisions that were necessary to balance our budgets. Yet balance them we did, without depriving our workers and their unions of a voice. Just like their private-sector counterparts, public-employee unions and their hard-working members have sacrificed during these hard times. Hundreds of thousands have been laid off, while others have taken wage cuts and furloughs and have reduced their benefits in an effort to help balance state budgets. These are the men and women who care for our disabled and sick, educate our children, clean our streets, inspect our food, protect our homes and provide all of the vital services our communities need. They are hardworking, good and decent people who are struggling to make ends meet, just as their neighbors and friends are doing during an economic crisis that they did not create. That's why Mr. Schoen's rhetoric is so disturbing. The Democratic Party has traditionally been devoted to improving the quality of life for working families and the middle class. Unions share this vision and are, in fact, the embodiment of it. What Mr. Schoen's calling for is nothing less than Democratic abandonment of our core values. We think it's important for Democrats to make it clear that, especially during troubling economic times, these values are not up for grabs.
Chet Culver, Iowa Bill Richardson, New Mexico Ted Strickland, Ohio Jim Doyle, Wisconsin Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/ge/al?rnd=AD1Y%2Bf%2F%2F6YZrWtKggSiTJg%3D%3D. You can use this link on the day this article is published and the following day.
I find it fascinating how a teacher in IL, goes to work and gets [over] paid for their tenure. Then, retires with 70% of their highest annual earnings. So, in short, most teachers from the public system retire with about 70-80K per year from the TSA (yes many teachers reach 100K per year in the IL system). If you do some simple math, the amount required in savings, with a risk free rate of return of 4% (to be conservative) means that the equivallent in savings per teacher would need to be 2.0MM to avoid risking the principal balance...
Wow, some real goobers doing the math at TSA...sounds like they need a new CFO, along with a new political system.
Oops, meant TRS, not TSA, Freudian slip!
I'll tell you what may happen, and the deferred compensation is a wallop for the courts to consider but this is what I think. I believe that as with the GM when it went bankrupt under a "special" bankruptcy and literally throwing out decades of bankruptcy law concerning who is first in order of payment. I see that the US govt. via the federal courts will allow the states and municipalities to default on certain payments (like the pensions and other in state bills) but not others. They will allow the states to change the rules and payments on pensioners now and in the future. The other payments like munibonds will be bailed out in secret using a facility to swap/pay the bond holders full price for the muni's. They have to because if they allow the munis to lose massive amount of money, then it brings down the muni bond market and possibly whats left of the US treasury bond market.
The states are sure to declare bankruptcy becausethere are three only three final outcomes to debt :
Repayment
Default
Part repayment part default
The problems of excessive debt and leverage cannot be solved by taking on more debt and leverage. The ponzi scheme can only go on till you have someone willing to lend you money to pay the previous lender. The game stops when your cost of borrowing becomes exceptionally high or there is a shortage of lenders willing to lend.
Madoff Multiplied
http://www.marketoracle.co.uk/Article24581.html
I see the states altering their pension obligations while the Fed Govt. is there holding their hand. It'll be similar to how senior debt holders were treated at GM most likely.
An obligation clearly does not mean what it used to, then again the whole question of what a reasonable pension is or should be has never been talked about. It does bother me that government employees earn more pre/post retirement than their private counterparts.
Personally, if you didn't contribute anything to your pension and still earned above market rate income compared to private employees I question your claim to a pension. Then again the people who agreed to bind taxpayers to providing exorbitant pensions should be taken out back and...well you know.
and there are two avenues:
repayment
default
a partial repayment / part default is still a default.
As soon as the high speed rail project is completed by the Chinese in your area, jump on it and hightail it out of your bankrupt metropolis! May want to find out where it goes first, to avoid ending up in another bankrupt metropolis. By my calculations, 80% of us will be able to relocate 200% faster to a different place with the same problems!