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The Ugly Picture of State Pension Funds

GoldSilver.com  |  Anthony B Sanders

California Public Pension Shortfall One of Nation’s Largest (Kentucky, New Jersey, Illinois, Colorado The Worst)

Image result for Pension Collapse

The Pew Charitable Trusts recently came out with their study, “The State Pension Funding Gap: 2015”.  And an ugly picture it paints of state pension funds.

Here is a nice editorial from The Sacramento Bee:

Throughout California, local government and school district officials are writing new budgets and confronting rapidly rising costs of pensions.

Many have seen their costs double in the last few years, largely consuming revenue increases that the state’s expanding economy have produced. For instance, a projected $1 billion increase in school districts’ teacher pension costs in 2017-18 will more than equal projected revenue gains.

However, as the old rock song says, “You ain’t seen nothing yet.”

Lackluster earnings by pension trust funds, revised actuarial projections and impacts of benefit increases are compelling the systems to sharply increase mandatory “contributions” from public employers.

Nevertheless, pension systems have seen their “unfunded liabilities” continue to increase – giving California one of the nation’s widest gaps between earning assets and pension obligations.

California’s unfortunate status is confirmed in a new report from Pew Charitable Trusts, which found that in 2015 the state’s two big pension funds had the nation’s sixth-worst record of reducing unfunded liabilities, gathering just 79 percent of the $18.9 billion they needed to keep their pension debts from rising.

California’s status may have worsened since then. In 2015, Pew reported, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System had 74 percent of what they needed to meet pension obligations, but that ratio has since dropped to about 64 percent due to reductions in their projected investment earnings.

The worst according to net amortization? The net amortization calculation recognizes strong contribution policies. It reflects plans’ assumptions and actions, as well as the market forces at hand. Six states—Colorado, Illinois, Kentucky, New Jersey, Pennsylvania and California—fared worst on this benchmark in 2015. But Kentucky is the worst giving new meaning to the term “Kentucky windage.”

The worst funded ratio for 2015? New Jersey, Kentucky and Illinois — all at 40% or lower.

Just as troubling is the rising state pension liabiities versus pension asset.

The abysmal performance of pension fund managers is partly to blame, which is hard to imagine when stock and real estate prices have been soaring (particularly with the low cost of funding courtesy of The Federal Reserve).

But the real problem is Defined Benefits programs (Ohio switched to Defined Contributions back in the 1980s).  But as the Baby Boomers retire in force, the pension coasts will continue to skyrocket.

Why didn’t state governments plan for this pension explosion? And what happens if asset bubbles burst?

“Yes citizens, you are going to have to bail out our state workers and teachers. But after we try to get the Federal government to pay for the pension shortfall.”


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