Posted on 04/10/2010 5:16:37 AM PDT by reaganaut1
State governments from New Jersey to California that are struggling to close budget deficits are skipping or deferring payments to already underfunded public-employee pension plans. The moves could help ease today's budget pressures, but will make tomorrow's worse.
New Jersey's governor, a fiscal conservative, has proposed not making the state's entire $3 billion contribution to its pension funds because of the state's $11 billion budget deficit. Virginia has proposed paying only $1.5 billion of the $2.2 billion required pension contribution. Connecticut Republican Gov. M. Jodi Rell is deferring $100 million in payments this year to the pension fund for state employees to help close a $518 million budget gap
"Yes it's wrong," said New Jersey Republican State Sen. Robert Singer. "But the governor "has no other choice."
The deferrals come as pension experts say the funds need the money more than ever, after losses during the financial crisis. Before the 2008 market collapse, 54% of public pensions for states and local governments had assets totaling at least 80% of their liabilities. Last year, only 33% of plans met that criterion, according to a study released Thursday by the Center for State and Local Government Excellence and the Center for Retirement Research, both nonpartisan groups.
The issue of the contributions is heating up right now with legislatures in the thick of budget season. The recession has left states with less means to make their pension payments just as they are rising.
The deferred payments are particularly irksome to some public union employees who say they have been unfairly blamed for the fiscal burden of public pensions on taxpayers.
"The state has kicked the can and now the can has become a 55-gallon drum," said Anthony Wieners, president of the New Jersey State Policemen's Benevolent Association.
(Excerpt) Read more at online.wsj.com ...
Wow. Many states will soon be in the midst of a red-hot pension-funding crisis (some already are). Some municipalities have been there for several years already. What a mess. Glad I’m not a state/municipal employee.
Conclusion
The conclusion that emerges from this update is that while states and localities were on a path toward full funding of their pension liabilities, they were seriously knocked off track by the financial crisis. The first glimpse of the dimension of the damage is becoming evident with the actuarial valuations for 2009. (Since three-quarters of plans have a fiscal year ending June 30, the 2008 valuations were closed before the crisis hit.) Between 2008 and 2009, the ratio of assets to liabilities for our sample of 126 plans dropped from 84 percent to 78 percent. But this decline is only the beginning of the bad news that will emerge as the losses are spread over the next several years. The ultimate outcome will depend on the performance of the stock market, but under our most likely scenario, funding ratios will decline to 72 percent by 2013.
The key question is what should be done. A major increase in contributions is not realistic at this time. States and localities may have only limited ability to increase employee contributions, because some state courts have ruled that the public employer is prohibited from modifying the plan for existing employees. Higher contributions from new employees will take a long time to have any substantial effect. Thus, if funding levels are to be restored quickly, the money must come primarily from tax revenues. But the recession has decimated tax revenues and increased the demand for state and local services. Thus, finding additional taxes to make up for market losses will be extremely difficult. One small step that would be viewed as a commitment to responsible funding would be for states and localities to at least pay their full ARC. Otherwise, the only option is to wait for the market and the economy to recover.
In other words: Use whatever money the state has now to fill up the pension coffers and worry about the budgets later.
And we just turned over our health care to the same type idiots who did this? We really are sick.
The public sector ‘spending bubble’ will burst, and it could be more damaging to the economy than the subprime bubble.
Obama will be right there to make sure you and I pay them all.
California is 506 billion upside down. You can’t fix it.
Drill baby, drill! Everywhere, the parks, off shore, the beaches, the capital steps, in the middle of the roads and highways, the Sierra Club offices, Barbra Streisand's Ranch, Oprah's home, etc. etc. etc. lol
If the money paid in is not there, it's not there. First thing is to shut down the ponzi systems and then see what's left.
Idiots running these plans knew the actuarials and didn't give a hoot - plus a lot of crooked investing, dumb investing, and more - states set up unsustainable plans and then either borrowed from them or failed to make their own share of the contributions.
Private citizen taxpayers have to draw the line on this issue or we will be slaves for life - the bottom of a two-caste system.
“Glad I’m not a state/municipal employee.”
Ah, good ol’ Poundstone - proud government employee -
Do you really think you are going to get your federal pension?
No, us private sector folks aren’t going to pay the future taxes to keep you in retirement style. No offense.
We might pay for a barracks-type environment and an extra helping of gruel, on account of all your hard work as a government employee.
I was thinking of Cher’s cliffside 58 million dollar home in Malibu. It is lined with trees, so they would block the view of the drills ;-)
Kinda sorta. The generic “we” voted them into office on vague promises of hope and change and once elected the dems went LOL! We won! and started taking what they wanted.
I know somebody who retired after 20 years as a state employee from Connecticut. He gets 90% of his top pay plus full medical and other benefits for life. He was a nurse. Not a cop of fireman. He’s now been retired for 10 years. He has not saved a dime as he has this guaranteed income for life. So, he spends his time traveling and buying stuff. I think when reality sets in there are going to be a lot of disgruntled 50-somethings desperately trying to get back into the working world. He feels entitled to this benefit because “I earned it.” Well, by the rules, yes, maybe he did. But shouldn’t he have been wondering all along whether this was a sustainable benefit? I would have. Certainly, I’d have put a few sheckles aside for a rainy day.
(BTW, I did and Obama is confiscating them through inflation.)
Absolutely. I would also cap pensions at the SocSec max or the actual actuarial value of the individuals contributions whichever is higher. If we need to take strikes then so be it.
“Virginia has proposed paying only $1.5 billion of the $2.2 billion required pension contribution.”
What does this mean? I know there are plans to change the benefits of people entering the system. I will be retiring July 1.
This will not effect you. Basically states are hoping things will improve before the checks have to be sent out in a decade or two.
In most states, vested benefits are legal obligations that are equivalent to state debt. Those cannot be reduced without it being considered a default. Unvested benefits, though, can be reduced or eliminated.
That’s what I thought, but I still don’t understand what that meant. I thought Virginia had one of the most sound retirement systems in the country.
Why should he put his sheckles aside. I am sure you (and me) have plenty of sheckles sitting in our 401(k)s/IRAs. At the very least Social Security will be needs tested so that everyone who can fund the minimum S.S. level will not get anything over the minimum from S.S. Thanks for your 40 years of contributing 13% - you made a nice retirement for your neighbor.
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