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Passing the Pension Time Bomb?
Reuters reports, NYS public pension costs will double in 5 years:
New Taxpayer Taxpayer "The run-up in "This Using Based You can download the complete report by clicking here. I quote the executive summary below:
York State taxpayer-funded contributions to public pensions will
"explode" in the next five years, forcing the state to divert resources
from other services to meet the obligation, the Empire Center for New
York State Policy said in a report on Tuesday.
contributions to the New York State and Local Retirement Systems could
double over the next five years, adding nearly $4 billion to annual
taxpayer costs, according to the report by the nonpartisan think tank.
contributions to the New York State Teachers' Retirement System, which
totaled $900 million this year, could reach $4.5 billion by 2016, the
report said.
pension costs threatens to divert scarce resources from essential
public services during a time of extreme fiscal and economic stress for
every level of government," the report said.
is not just a matter of financial necessity but of basic fairness to
current and future taxpayers -- the vast majority of whom will never
receive anything approaching the costly, guaranteed benefits available
to public employees," it said.
private-sector accounting rules, the Empire Center estimates the New
York State and Local Retirement Systems are $71 billion short of what is
needed to fund pension obligations, while the state retirement system
for teachers has a funding shortfall of $49 billion.
on the same standard, New York City's pension funds had unfunded
liabilities of $76 billion as of mid-2008, before their net asset values
plunged in the wake of the financial crisis, the report said.
Public pension costs in New York are mushrooming—just when taxpayers can
least afford it. Over the next five years, tax-funded annual
contributions to the New York State Teachers’ Retirement System (NYSTRS)
will more than quadruple, while contributions to the New York State and Local Retirement System (NYSLRS) will more than double,
according to estimates presented in this report. New York City’s
budgeted pension costs, which already have increased tenfold in the past
decade, will rise by at least 20 percent more in the next three years,
according to the city’s financial plan projections.NYSTRS and NYSLRS are “fully funded” by government actuarial standards,
but we estimate they have combined funding shortfalls of $120 billion
when their liabilities are measured using private-sector accounting
rules. Based on a similar alternative standard, New York City’s pension
funds had unfunded liabilities of $76 billion as of mid-2008—before their net asset values plunged in the wake of the financial crisis.The run-up in pension costs threatens to divert scarce resources from
essential public services during a time of extreme fiscal and economic
stress for every level of government. New York needs to enact
fundamental pension reform to permanently eliminate the risks and
unpredictability inherent in the traditional pension system.
While I agree that using a discount rate based on rosy expected
investment returns is a recipe for disaster, the report irked me when it
went as far as recommending closing defined-benefit plans to new
members:
The
lesson is clear: the traditional pension system exposes taxpayers to
intolerable levels of financial risk and volatility. New York’s existing
defined-benefit (DB) public pension plans need to be closed to new
members, once and for all. They should be replaced either by
defined-contribution (DC) plans modeled on the 401(k) accounts that
most private workers rely for their own retirement, or by “hybrid”
plans, combining elements of DB and DC plans, that cap benefits and
require employees to share in some of the financial risks of retirement planning.This
is not just a matter of financial necessity but of basic fairness to
current and future taxpayers—the vast majority of whom will never
receive anything approaching the costly, guaranteed benefits available
to public employees.
So let me get this right, it's fair to close defined-benefit plans to
new teachers, police officers, firemen, and civil servants?!? Why not
just use a proper discount rate, increase contributions and bolster the
governance of these plans so that pension fund managers are properly
compensated based on risk-adjusted returns over the long-term? In other
words, don't condemn defined-benefit plans, but look into other
structural weaknesses of the US pension model and try to incorporate
Canadian-style pension governance.
And
if you think there aren't governance issues at New York's pension
funds, just look at Attorney General (now governor) Cuomo's probe into misconduct and fraud at NY State's pension fund.
Sure, it could happen in Canada too, but I bet you it's much more
prevalent in the US where pension fund officers are poorly compensated
and politics permeate pension funds.
Of course, New York isn't
the only state that has to deal with rising pension costs. Bloomberg
reports that trustees of the $24 billion retirement system for state
employees in Pennsylvania, the sixth most-populous U.S. state, approved plans to shift assets from hedge funds to stocks and fixed-income securities:
The
move will raise the share of the fund’s holdings to 39 percent stocks
from 27 percent, and to 26 percent fixed income from 15 percent,
according to a news release from the State Employees’ Retirement System.
The transition will help cover rising benefit payments and is a
long-term target, the release said.
Benefits and expenses are expected to cost $2.6 billion in 2011, rising to $4 billion in 2020, the news release says.
The
plan adopted today “continues the planned gradual shift, introduced
last year (and subject to annual review), toward a greater allocation to
fixed-income investments in order to meet the liquidity needs arising
from a projected increase in benefit payouts as the fund matures,” the
release says.
The fund,
which has about 226,000 members, gained 5.2 percent, or $1.2 billion,
during the quarter that ended Sept. 30, according to the news release.
Finally, Chicago Business reports, Bond sale not enough to help Illinois plans, Moody's says:
The
combined funded level of Illinois’ five state retirement systems would
weaken further, even if the state issues some $4 billion in pension
obligation bonds to finance its required annual contributions, according
to a Moody’s Investors Services report on Monday.
An
anticipated issue of eight-year general obligation bonds to pay the
state’s pension contributions for the current fiscal year to the state
systems “would at least limit deterioration in the funded status of the
state’s pensions, which are the lowest-funded among states,” the
one-page report said. “Nonetheless, we expect the state’s pension funded
ratios to weaken further before improving, given that statutory
contributions are below the actuarially determined amounts needed to
amortize the plans’ unfunded liabilities.”
The
state Senate last month in a special session failed to pass a bill to
authorize the state to issue up to $4.1 billion in pension obligation
bonds, even though the House passed the legislation 71-44, with two
voting present, on May 25.
The bill calls for borrowing between
$3.7 billion and $4.1 billion, depending on whether the systems certify
their actuarially required state contributions, taking into account a
reduction in funding costs stemming from a measure enacted last spring
that cut pension benefits for new state employees.
Senate
approval for the bond sale “may be forthcoming during lame-duck
legislative sessions” scheduled for January, the report said.
Illinois
already has about $13 billion in pension obligations bonds still
outstanding from $10 billion sold in 2003 and $3.4 billion in January.
Earlier
this year, Gov. Pat Quinn proposed a state budget provision that
wasn’t approved by the General Assembly that called for contributing
$3.74 billion to the five state retirement systems, taking into account
state saving from restructured pension benefits. Under it, the $33.7
billion Illinois Teachers’ Retirement System, Springfield, would
receive $2.16 billion; the $12.9 billion Illinois State Universities
Retirement System, Champaign, $777 million; and the $10 billion
Illinois State Board of Investment, Chicago, a combined $801 million
for the three systems it oversees — Illinois State Employees’
Retirement System, the Illinois Judges’ Retirement System and the
Illinois General Assembly Retirement System.
These are just a few examples of state pension woes. There are
plenty of other states suffering similar problems and no matter how many
state pension obligations bonds they emit, all they're doing is buying
time and not dealing with the underlying structural issues. At one
point, the pension time bomb will explode, and taxpayers will be stuck
footing the bill.
»
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The comments above by the business owners indicate that we are totally fukked going forward. Until laws are passed that limit public pensions to $30k-$50k per year (as an example), more businesses will be forced to close or downsize employment, or actually offshore. A continuing spiral down. Just as the HC Bill is forcing Docs to retire early, further exacerbating the whole HC issue. The pitchfork moments are coming.
This will not truly be seen as problematic until 1 month's worth of checks fail to get mailed out....
"So let me get this right, it's fair to close defined-benefit plans to new teachers, police officers, firemen, and civil servants?!?"
Yes.
The private sector lost it's ability to offer these retirement benefits long ago.
Why should goobermint employees have them at all?
If 401k's, IRA's and SS are fair for the people (taxpayers) who actually pay goobermint sector salaries...they are fair for goobermint retirement plans as well.
If your accounting method starts with a presumed yearly outlay the base can never be cut.
Baseline accounting has failed to keep up with expenses & "revenues"...I'm shocked, shocked I say, to find gambling has been going on in this house!...LOL.
"Lost its ability?"
Are you kidding me?
Where do you think exploding executive compensation and government lobbying budgets come from?
Yeah, let me just go buy a Ferarri, "lose my ability" to pay my debts, and tell my creditors to pound sand while you explain how "fair" it really is.
The topic is about government employee pension costs funded by taxpayers in case you were wondering.
"Where do you think exploding executive compensation and government lobbying budgets come from?"
Every board votes on the compensation of it's officers. As a shareholder, YOU get to vote on them, the officers. As a consumer you don't have to deal with any company you don't want to...well... until ObamaCare made it a crime to not have health insurance.
As a company, they can stay within budget or borrow into oblivion...but their credit rating & stock will suffer as a result.
Governments are under no such constraints.
"Yeah, let me just go buy a Ferarri, "lose my ability" to pay my debts, and tell my creditors to pound sand while you explain how "fair" it really is."
No one put a gun to your head and said go into debt...what fucking "creditors" are you talking about? If you haven't paid off your creditors before you retire that's your fault sport, not executives, not your neighborhoods and damn sure not mine.
Man up...you took on too much debt...give the stuff back!
But you want to keep the stuff and have someone else pay for it don't you?
I'm glad some one gets it. Unfortunatly we will all ride this train off the cliff since no one will act in time.
NY, CA and IL -----> you bitchez better start cutting back now.
We're not bailing out Greece, and we're not bailing out the $ocialist $tates of Amerika.
We told you so, so don't give us that "greedy" shit.... greedy is mooching other people to pay your bills
Whatever.
Thanks Leo
Perhaps you could do a piece on just why you find Canadian pension plans to be superior to the admittedly rotten and corrupt versions in many US states.
In Wisconsin, the goo employees contribute nothing to their plans and can dun the taxcow for any losses that they sustain for gambling in the worst sort of Wall Street exotics. Illinois is big on that too and will lose a big wad of the pension obligation bond revenues.
As a manufacturer with about ten employees I get to eat shit from the mini-martinets of the state goo. IAfter the last foray of them out on a revenue raising scheme I am ready to quit.
Many goomint employees collect more in pension and benefits than I make, and my employees are capitalized at over 150k each. These maggots have tiny capitalization expenses compared to manufacturing.
TW,
Greeting my northern brother. Here in the great state of IL there is a small uproar in an affluent town NW of Chicago . By small I mean small(I believe one board member had an issue with this). It was found out by several members of the town's board that one of their higher ranking public employees retired took his retirement $$ through the city ~300k a year and within a year was rehired in a different department of the city at similar levels of pay. The town has ~10000 inhabitants in it. Not a bad way to live.
I too own a small business. We are unionized, trumped you there. My partner and I contemplate frequently why we do this when the employees and the unions both take home more per hour than we do.
F- it I'm going to dull my senses, my desires, my critical thought processes and become a gov employee. At least their pensions are guaranteed... until they are not.
Yearly or later, States will default and go bankrupt. This will be a simple and healthy solution for all pention paying problems.
I think so too. California has a poison pill in their constitution against this though (they knew!)
Their constitution does not allow dissolution of public employee debt via default/bankruptcy, so I don't know where it will go. Brown will ask for Fed $$ but the response should be a no.
You guys are so linear, how easy it is to fool you. Many of the ballyhooed shortfalls in state pension systems are due to nothing more than lies compounded by negligence. And all of the wonderful "solutions" proferred consist of theft, theft, and, wait for it, more theft.
10 years ago, I stopped paying my credit card bills in violation of our contract. Tomorrow, I will be "surprised" by my "exploding" debt. Further, I will explain how it is "unfair" that I should pay for those goods that I bought. And when lenders refuse to extend more credit, it will be because lenders are "greedy."
10 years ago, the public stopped paying its employees in violation of their contract. Tomorrow, it will be "surprised" by its "exploding" deficit. Further, it will explain how it is "unfair" that it should pay for those services that it bought. And when workers refuse to continue working, it will be because workers are "greedy."
Get out of New York State before its too late!
These are Structural Deficits that can not be fixed.....the private sector will not allow itself to be left holding the bill on this
wow. How in the heck is this going to end well?
Everyone will power their lives by solar voltaic.
Buy silver!
It ends well by bringing about the necessary reduction in government to levels where it actually supports the productive economy.
Agree. We need to slash and burn everything.
Virtually no government program works or does what it was intended to do except create make-work jobs.
Wall Street is getting rich financing the government debt and deficits
Does clean water come from your tap? do your toilets flush?
Wildly successful government programs.
>by bringing about the necessary reduction in government <
dnarby-
HaHaHa- That's hilarious! What a sense of humor you have! It'll never happen! At least not thru the political process- by either of the two parties. Anybody with an IQ of 50 knows the deficits will never get paid, but yet the circus continues. Just rearrange the deck chairs on the good ship USSA Titanic! Let's get the band to play another song!