CG: More tax increases heading your way.
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HARRISBURG, Pa. – States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, according to a new study that warns of even more debilitating costs if immediate action isn't taken.
The Pew Center on the States released a survey Thursday of state-administered pension plans, retiree health care and other post-employment benefits in all 50 states that blamed a decade's worth of policy decisions for leaving them shortchanged.
The result for some states will be "high annual costs that come with significant unfunded liabilities, lower bond ratings, less money available for services, higher taxes and the specter of worsening problems in the future," the study said.
The cost of the trillion-dollar shortfall, which will be paid over the coming decades, is about $8,800 for each American household. The study did not include many city, county and municipal pension plans, which are thought to have similar underfunding.
"We have a significant problem now, but it's a problem that can be solved by taking relatively modest steps," said Susan K. Urahn, the center's managing director. "If they don't do anything, if they wait, eventually they will have an unmanageable crisis on their hands."
As of 2008, states had $2.4 trillion to meet $3.4 trillion in promised pension, health care and other post-retirement benefits, according to the report.
The true gap may even be wider, because the study did not account for the full impact of investment losses in late 2008, during the stock market downturn, and because many plans employ multiyear smoothing techniques to lessen the effect of a single year's losses. But more recent stock market returns could help — on Wednesday, for example, Pennsylvania's $47 billion public school pension plan reported it had earned about 12 percent on investments in the 2009 calendar year.
Pew deemed 16 states solid performers in how they fund pensions, 15 needing improvement and 19 considered to be facing serious concerns.
"Meanwhile, more and more baby boomers in state and local government are nearing retirement, and many will live longer than earlier generations — meaning that if states do not get a handle on the costs of post-employment benefits now, the problem likely will get far worse, with states facing debilitating costs," the study said.
The exploding financial burden could be a bitter pill for taxpayers, many of whom will not be collecting similar pensions or other benefits when they retire, said David Kline with the California Taxpayers' Association. About one in five private sector workers have traditional defined benefit pensions, compared with about 90 percent of public-sector employees — including some that do not get Social Security.
"Taxpayers in the future will be paying for people who worked decades before they may have even lived in the area or begun paying taxes, because the obligation for these benefits is just snowballing," Kline said.
The study graded states on how well they have managed employees' retirement benefits. Florida, Idaho, New York, North Carolina and Wisconsin began the current recession with fully funded pension systems, while eight states have left more than one-third of their pension liability unfunded.
Illinois was rated the most troubled pension system during the study period, with a 54 percent funding level and a total liability of more than $54 billion.
In Pennsylvania, a series of decisions by the Legislature and governor have shielded taxpayers from much of the pain for the past decade, but costs of less than $1 billion a year now is projected to climb to about $6 billion annually in the coming three years.
The report said policy makers have exacerbated the problem by expanding benefits, relying on overly optimistic assumptions about investment returns and failing to sufficient fund the programs.
"Even though the actuaries tell the states what they should be doing, the states feel free to ignore that," said Olivia Mitc , director of the Pension Research Council at the University of Pennsylvania's Wharton School. "So putting some teeth behind the requirements is really the problem."
Pew calculated a $587 billion national cost for current and future retiree health care and other nonpension retirement benefits, with only about 5 percent of that amount funded as of 2008. The cost of health care and the number of retirees are both on the rise, adding to the pressure on states.
The study found that 15 states made some legislative changes to their state-run systems last year, 12 did so in 2008 and 11 in 2007. About a third of states had formal efforts to study potential reforms under way last year.
"Pension plans work when they are allowed to work, and part of that dynamic is that sometimes adjustments have to be made," said Keith Brainard, research director with the National Association of State Retirement Administrators. "It's important not to take away decent retirement benefits for some of the few people that have them."
Pew said states should consider changes that have proven to be effective and politically viable. Among them: setting minimum contribution levels that are actuarially sound, sharing some of the investment risk with employees, cutting benefits, increasing the minimum retirement age, making employees pay more into the system and providing more robust oversight and investment rules.
Mitc said many states have cons utional prohibitions against lowering employee pension benefits, but health care programs can more easily be altered.
Baby Boomers have set themselves up just fine for retirement (pension plans, Social Security, Medicare); all the while not paying for it during their working careers (Pensions were underfunded, Social Security was at half its current rate until '90, and Medicare didn't include drugs until a few years back).
The great failing of the "Greatest Generation" is they raised a bunch of worthless children.
and the Baby Boomers' kids are totally different and fixing everything, right?
When the Baby Boomers were in their prime years, it was their parents, The Greatest Generation, that was making them pension and benefit promises, both govt and private, that were then raided, esp private pensions, to puff up corporate balance sheets.
Last edited by boutons_deux; 02-18-2010 at 11:32 AM.
Then they stuck their children with having to foot the bill for all their retirement en lements.
Yeah, I'm sorta with them. The "Greatest Generation" are due their kudo's. They were great in so many ways.
But, the saddling us with Social Security, medicare, etc...well intentioned as it may have been, is literally destroying this country's future.
They shoulda known better...as shoulda we.
Tweak it now, or pay out the ass later. I wonder which solution pols will pick, since any tweak will involve cuts in government services, or tax increases, or both?
Bite the bullet or kick the can?
The politicians will want to kick the can. But most of the states have balanced budget amendments so that will help nudge things towards biting the bullet.
That's what happens when you mix unions with government service.
Working for the government should be an honor and a privilege. Like the military. You should have to want to give to your state or nation, and not take. Now I'm not saying there shouldn't be benefits, but when you have unions advocating for the workers, you really don't have a balance of the tax payers to keep things in check during union negotiations. I don't really know about other states, but state workers in Oregon really have it made for most job fields. Teachers here are probably among the highest paid in the nation, and they cry about making I think $60k to $80k for the part time job.
We do it to ourselves. Just look at the people we elect, and how they don't care about how they spend our money.
Anyway, if we want unions to advocate for state workers, then I say the contract should be put to a public vote, where everyone has a say as to the wages and benefits. So we, the tax payers, directly screw ourselves, instead of our lawmakers.
Actually WC, the problem is that state governments have been underfunding their obligations. The states raided the kitty to pay for whatever, and you blame it on unions.
No, you are right about that as part of the problem. However, many states, with that same insight of public officials, sign union contracts that no corporation in it's right mind would.
We've been kicking the can an awful long time.
CG is right about the utter brutality of balanced budget amendments, states will either fulfill their obligations or go bankrupt, short of which drastic cuts in services are expectable. I wouldn't be at all surprised if states started writing down their own pension obligations.
in NC fees to managers has gone up 1000%, possible self-dealing is shrouded in secrecy:
http://inthesetimes.com/article/1660...pension_gamble
that should be means tested just like down here,
apparently u can live in ur own home value upto 1m bucks still collect the fkn pension down here...if i were the govt either get them to sell up and downgrade live within their means with whatever is left of the proceeds....
As of a few months ago, Oregon's unfunded liability was only $11 billion...
Oregon's 2012 population estimate is 3,899,353, so that's only $2,821 for every man, woman, and child...
http://www.oregonlive.com/portland/i...ity_drops.html
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