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PEW Study: States Have $1 Trillion Pension/Benefits Gap
Friday, February 19th, 2010 | Economics, Health Care | Permalink | No Comments |
Mish - PEW Study Shows Trillion Dollar State Pension Gap; Can Anything Be Done?
A $1 trillion gap. That is what exists between the $3.35 trillion in pension, health care and other retirement benefits states have promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay for them, according to a new report by the Pew Center on the States.
Retiree health care and other non-pension benefits create another huge bill coming due: a $587 billion total liability to pay for current and future benefits, with only $32 billion—or just over 5 percent of the total cost—funded as of fiscal year 2008. Half of the states account for 95 percent of the liabilities.
And the actual numbers may be even worse, because most states’ reports haven’t taken 2008’s stock market decline into account:
All but three states—Idaho, Oregon and West Virginia—use a smoothing process in which investment gains and losses are recognized over a number of years. Smoothing is a way of managing state expenditures by preventing contribution rates from suddenly jumping or dropping. The number of smoothing years varies, with five years being the most common. Because only a portion of the 2008 losses will be recognized each year, there is a great likelihood that pension funding levels will be dropping for the next four to five years.
New Jersey’s $2.2 billion state of fiscal emergency
Wednesday, February 17th, 2010 | Economics | Permalink | No Comments |
Chris Christie declares fiscal ’state of emergency,’ paving way for N.J. spending cuts.
Along with eliminating programs “that sounded good in theory but failed in practice” across state departments, Christie is cutting $475 million in aid to school districts, $62 million in aid to colleges and $12 million to hospital charity care. He is pulling all funding from the department of Public Advocate, a longtime Republican target, and folding its functions into other parts of government. He is cutting state subsidies for NJ Transit, a move Christie said could lead to higher fares or reduced services but would force the agency to become “more efficient and effective.”
Cali. pension fund admits board member took $50 mil. in fees to make bad investments
Thursday, October 15th, 2009 | Economics | Permalink | No Comments |
Wall Street Journal - Calpers Rocked by ‘Pay to Play’:
America’s largest public-pension fund, Calpers, revealed that a former board member had reaped more than $50 million in fees for arranging investments that could saddle state taxpayers with hundreds of millions of dollars in losses.
The disclosure deepens concerns that alleged conflicts of interest are undermining state retirement funds.
The California Public Employees’ Retirement System said it is launching a “special review” into payments by money managers — including billionaire Leon Black’s Apollo Management LP — to firms including Arvco Financial Ventures LLC. Arvco is headed by Al Villalobos, who served on Calpers’s board from 1993 to 1995.
Via W.C. Varones, who has a roundup of his past coverage of the California pension fund’s malfeasance.
Previously
Because Tim Hutchison needs a bigger pension
Wednesday, October 14th, 2009 | Best Of, East Tennessee | Permalink | 1 Comment |
The former Knox County sheriff is gearing up to run for Knox County mayor.
I’m not a Tim Hutchison (R) fan. I work in Knoxville, but I don’t live there and therefore don’t vote there, don’t pay taxes there, and don’t send my kids to school there. I try to ignore Knoxville politics as much as possible. But even as a casual observer of Knoxville politics I find plenty to dislike about Hutchison.
- Hutchison used imminent domain to demolish a block of downtown Knoxville buildings for a new city jail. The jail was never built. A study determined Knoxville didn’t need a new jail. The buildings and the businesses in them were gone all the same.
- Under Hutchison the sheriff’s department “pension was changed from a defined-contribution pension plan, similar to a 401(k), to a defined-benefit plan, which has a specific payout. As has been noted, under the new plan, former sheriff Tim Hutchison’s pension goes from $20,000 to $80,000 a year.” The plan was estimated to cost $100 million over 20 years. Within a year the costs were revised upwards due to a deteriorating stock market. The only mitigating factor in Hutchison’s defense was that Knox County voters actually voted for that disaster in a referendum.
- As sheriff Hutchison refused to cooperate with “America’s Most Wanted” when they offered to feature the Johnia Berry murder to help find leads. At that point AMW had led to the arrest of 887 fugitives. Hutchison never caught the killer. His successor caught the guy after someone identified him from a police sketch and turned him in for the reward. Luckily the idiot had never bothered to leave Knoxville despite his face being on billboards, yard signs, and Food City grocery trucks all around town and a $70,000 reward being offered for his arrest.
- Hutchison had a grudge match with some member of the county council or whatever it’s called, in which they constantly filed lawsuits against one another at taxpayer expense.
My wife and I are trying to decide if our next house is going to be in Knoxville, Maryville, or Alcoa. One persuasive argument against buying a house in Knoxville is that the government is so lousy. Tim Hutchison is a prime example of how lousy it is.
Kansas U: Kansas public pension fund is “bankrupt under current operating assumptions”
Thursday, September 24th, 2009 | Economics | Permalink | 3 Comments |
KU School of Business - THE FUNDING CRISIS IN THE KANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM (PDF link):
CalPERS actuary says pension costs “unsustainable”
Tuesday, August 18th, 2009 | Economics | Permalink | No Comments |
Mish - CalPERS Admits California “Pension Costs Unsustainable” - So What To Do About It?
The CalPERS chief actuary says pension costs are “unsustainable,” and the giant public employee pension system plans to meet with stakeholders to discuss the issue.
“I don’t want to sugarcoat anything,” Ron Seeling, the CalPERS chief actuary said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
CALPERS plans riskier bets to recoup losses on previous risky bets
Saturday, July 25th, 2009 | Economics | Permalink | No Comments |
New York Times - California Pension Fund Hopes Riskier Bets Will Restore Its Health:
Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.
That’s right, he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge. Calpers’s real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. What is more, under Mr. Dear’s predecessor, Calpers had to sell stocks in a falling market last year to fulfill calls for cash from its private equity and real estate partnerships. That led to bigger losses in its stock portfolio.
And there’s this:
Mr. Dear remains a believer. Private investments, he asserts, will over the long haul outperform stocks by three percentage points a year, and that is necessary to keep Calpers on track to returning its goal of 7.75 percent annual returns.
See Calling BS on high rates of expected return for why a 7.75% annual return - year in and year out - is unrealistic. These municipal pension fund managers and their political bosses have to pretend those returns are possible. Ootherwise they’d have to admit the pensions are woefully underfunded. California is broke and is planning cuts in basic services. They’d have to cut even more if they fully funded their massive pension funds.
California pension funds lose $100 billion in a year
Friday, July 24th, 2009 | Economics | Permalink | 1 Comment |
LA Times - California’s biggest government pension funds lose almost $100 billion:
CalPERS’ preliminary losses were $56.2 billion in the fiscal year that ended last month, while the California State Teachers’ Retirement System lost $43.4 billion.
On Tuesday, the country’s two biggest public pension funds reported losing almost $100 billion in the fiscal year that ended June 30. And the governor is expected to highlight the new numbers as he renews a campaign to trim the cost of providing lifetime, fixed benefits to hundreds of thousands of government retirees.
Previously:
- Californians are getting the best government IOUs can buy
- More underfunded public pensions
- Pension Benefit Guaranty Corporation lost its shirt in stocks
- Knox County sheriff’s pension fund in trouble already
- “If you did not know it before, you do now. California is bankrupt.”
- CA pension loses 25% of assets since July 1 due to real estate investments
Californians are getting the best government IOUs can buy
Wednesday, July 8th, 2009 | Economics | Permalink | 1 Comment |
It was 29 days ago that the California comptroller predicted the state would be out of money in 50 days. Unless California’s rich uncle dies (and his estate goes through an exceptionally fast probate) California will be broke in three weeks.
Last week California began issuing IOUs to conserve its cash. California IOUs are like Disney Dollars. They’re only useful in a fantasy world. In Disneyland mice and ducks talk and wear pants. In the California legislature public employee unions can get endless pay and benefit increases.
Part of California’s problem is that tax receipts have fallen disastrously, but the bigger problem is that California’s spending has risen disastrously. Matt Welch likes to note that California’s budget has grown faster than can be accounted for by the rate of inflation and the increase in its population. All the while, public sector union pensions funds have been helping themselves to public money like Scrooge McDuck.
According to Adam Summers—a policy analyst at the Reason Foundation, the nonprofit that publishes this magazine—the state’s annual pension fund contribution vaulted from $321 million in 2000–01 to $7.3 billion last year. According to public databases, more than 5,000 people are drawing pensions in excess of $100,000 from the state of California each year.
This is all going to come crashing down at some point, with that three week deadline looming large. California isn’t the only state with pension problems, but it looks like California is going to blow up first.
- More underfunded public pensions
- Obama’s GM plan pits unionized retirees against non-unionized retirees
- Automaker collapse will send worker pensions to government hands
- Pension Benefit Guaranty Corporation lost its shirt in stocks
- The Pension Benefit Guaranty Corp.
- More on the public/private pension fund disparity
- “it is only a matter of time before civil servants become civil masters”
- Knox County sheriff’s pension fund in trouble already
- “If you did not know it before, you do now. California is bankrupt.”
- California will lead states seeking bailout
- How did Vallejo, California go bankrupt?
- Goldman Sachs warns on NJ, CA, WI, FL, OH, MI bonds
More underfunded public pensions
Saturday, May 23rd, 2009 | Economics | Permalink | No Comments |
Baltimore Sun - Baltimore pension dispute illuminates public/private divide:
Severe market downturns lay bare any number of Ponzi schemes, and under-funded defined benefits pensions, public and private, can be justly described as such schemes. The problem with private plans is large enough. The Pension Benefit Guaranty Corp., which insures the pensions of 44 million Americans, said in a report this week that its deficit has tripled in just six months to a record $33.5 billion. Chances are it will have to be added to the growing list of entities to be bailed out by Uncle Sam. But this is trivial compared to the under-funding in public plans, which cover about 22 million workers. The deficits in the latter systems are said to total more than a trillion dollars. And these are not insured.
The gap between the public sector and private business in wages and benefits continues to grow. Last month, USA Today reported federal figures showing that public employees earned benefits worth $13.38 per hour in December 2008, compared to $7.98 for private sector workers.
What would you say about a government whose employees make more money than non-government employees performing the same job? That doesn’t sound like a government that has the best interest of its people at heart.
There was a time when people took government jobs for the security they offered. The bargain was that they would sacrifice pay for that security. Over time, the bargain tilted totally in favor of the government workers as they got both job security and higher pay than their counterparts outside government. Can this system be sustained? I think not, but we shall see.
The nature of our current bailout mania is wealth redistribution in reverse. Ordinary people are bailing out banks, car makers, and unionized and public sector workers who make more than them and who have better benefits. If California gets bailed out it will be bailed out by all of the states that are smaller and poorer. The rich are becoming a burden on the middle class and the middle class is becoming a burden on the poor. This can’t last.
Hat tip to Instapundit.
Indiana state pensions sue to stop Obama’s Chrysler deal
Wednesday, May 20th, 2009 | Economics | Permalink | 1 Comment |
Obama’s plan for Chrysler demoted senior debt holders (whom he maligned as “speculators”) to benefit UAW union members. As a consequence of that decision Obama’s plan shortchanged police and teachers unions who had Chrysler investments in their pension funds. Now the state of Indiana is suing.
As stated in the filings, the US Treasury Task Force is seeking to use the Chrysler bankruptcy to extinguish the property rights of the pension funds as secured lenders, violating the most fundamental tenets of creditor rights in disregard of widely recognized bankruptcy jurisprudence. The proposed restructuring of stakeholders’ rights seeks to make payments of billions of dollars to unsecured creditors, while paying the secured creditors only 29 cents on the dollar.
“As fiduciaries, we can’t allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining ‘secured creditors’ to mean something less,” explained Treasurer Richard Mourdock. “The court filing is aimed not only at recouping those losses but also reasserting the rule of law and preventing the federal government from pursuing policies that strike at the heart of the capital system.”
It’s Economics In One Lesson again: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
Previously: Obama’s GM plan pits unionized retirees against non-unionized retirees
Obama sides with the unions in California
Thursday, May 14th, 2009 | Politics | Permalink | No Comments |
Washington Post - Tincture of Lawlessness:
In February, California’s Democratic-controlled Legislature, faced with a $42 billion budget deficit, trimmed $74 million (1.4 percent) from one of the state’s fastest-growing programs, which provides care for low-income and incapacitated elderly people and which cost the state $5.42 billion last year. The Los Angeles Times reports that “loose oversight and bureaucratic inertia have allowed fraud to fester.”
But the Service Employees International Union collects nearly $5 million a month from 223,000 caregivers who are members. And the Obama administration has told California that unless the $74 million in cuts are rescinded, it will deny the state $6.8 billion in stimulus money.
The Obama administration’s agenda of maximizing dependency involves political favoritism cloaked in the raiment of “economic planning” and “social justice” that somehow produce results superior to what markets produce when freedom allows merit to manifest itself, and incompetence to fail. The administration’s central activity — the political allocation of wealth and opportunity — is not merely susceptible to corruption, it is corruption.
Previously
Obama’s GM plan pits unionized retirees against non-unionized retirees
Wednesday, May 13th, 2009 | Economics | Permalink | No Comments |
Bloomberg - GM Retirees Bully Bondholders With Obama’s Help:
General Motors Corp.’s likely bankruptcy filing is being cast in some quarters as a fight between “money people” intent on making a killing and honest efforts by the government to save a company and jobs.
In reality, GM’s demise comes down to a fight between retirees.
Under the restructuring plan on the table, GM’s retirees would get 39 percent of the company, along with the promise of a $10 billion payment into their health-care trust fund. That is in exchange for $20 billion GM owes the fund.
Not making out so well are current or future retirees who depend on the performance of mutual funds, 401(k) plans and insurance companies that invested in GM bonds. These debt investors, who are owed about $27 billion, will get just 10 percent of the company.
On one side are GM’s unionized retired workers. On the other, are the rest of us — either in retirement or saving for it. Guess who will lose as things now stand?
And needless to say the Chrysler deal falls along similar lines, screwing investors of all sizes for the benefit of the United Autoworkers Union. Someone wins, someone loses, and funny how the people who give the most money to politicians generally win.
Hat tip to Instapundit.
Automaker collapse will send worker pensions to government hands
Wednesday, April 29th, 2009 | Economics | Permalink | No Comments |
New York Times - Plight of Carmakers Could Upset All Pension Plans:
Pension experts predict that a government takeover of the two giant plans would spur other auto companies and all types of manufacturers to abandon such benefits for competitive reasons.
For hundreds of thousands of retired auto workers, a federal pension takeover would mean sharply reduced benefits. For the federal agency that insures pensions, it would mean a logistical nightmare in the short term — and most likely a slow demise eventually as fewer and fewer small plans remain in the system and pay premiums.
So far, the prospect of a grueling grind through bankruptcy court has been a major deterrent to companies that might want to rid themselves of pension obligations. But retirement and labor specialists are watching closely to see whether the administration’s auto task force will give either of the auto companies an easier way to shed their huge pension funds, blazing a simplified trail for others to follow.
Obama ends D.C. school vouchers: poor black children hardest hit
Monday, April 20th, 2009 | Politics | Permalink | No Comments |
Reason - New at Reason: Shikha Dalmia on Obama’s Hypocrisy on D.C. School Vouchers:
Against this grim reality, one would have thought an administration that ran on the theme of hope would do anything to nurture a program that offers a way out of D.C.’s hope-killing factories and into other schools.
Instead, the Obama administration has done everything in its power to strangle it. Obama cheerfully signed a spending bill that gratuitously included a provision phasing out the program next year unless Congress expressly reauthorizes it. Of course, making water flow uphill will be easier than winning approval from a Democrat-controlled Congress with strong ties to the teachers’ unions who contribute tens of millions of dollars to Democratic campaigns.
I’m continually disappointed by Democrats who oppose voucher programs. Poor children are by far the biggest beneficiaries of these programs. Without vouchers the quality of the schools your children attend is largely determined by your neighborhood, which is in turn largely determined by how much you can afford to spend on a house. People who oppose vouchers are opposing class mobility and meritocracy.
Judge rules that Vallejo, CA can cancel public union contracts
Wednesday, March 18th, 2009 | Economics, Politics | Permalink | No Comments |
In the first ruling of its kind, a bankruptcy judge held the city of Vallejo, Calif. has the authority to void its existing union contracts in its effort to reorganize, holding public workers do not enjoy the same protections Congress gave union workers at private companies.
Municipal bankruptcy is so rare that no judge had yet ruled on whether Congressional reforms in the 1990s that required companies to provide worker protections before attempting to dissolve union contracts also applied to public workers’ union contracts.
Are govt. pension funds really guaranteed by law?
Sunday, March 1st, 2009 | Economics | Permalink | No Comments |
Liberty Unbound - Promise Now, Pay Later: Among the states, the question isn’t who’s most likely to succeed. It’s who is most likely to default.:
In the precedent decision Spina v. Consolidated Police & Firemen’s Pension Fund, the New Jersey state supreme court had declined to apply conventional contract rights to a retirement plan because a defined-benefit plan must, by its nature, assume solvency that a contract doesn’t. “We think it more accurate to acknowledge the inadequacy of the contractual concept” as applied to retirement plans, the Spina court concluded. In other words, any contractual “guarantee” in a retirement plan is inherently suspect.
This is a key point: if you make a contract with a bankrupt entity, that contract is suspect. There’s no guarantee of solvency. Claims of pension moneys being “guaranteed by law” are dubious. If the plan is bankrupt, its solvency is obviously not guaranteed. Public officials (and, for that matter, pensioners) who count on these supposed guarantees are being reckless.
He follows that with excellent examples of politicians mismanaging state pension funds for political advantage. I love this summary of the government pension problem:
The best solution is to privatize state pension funds and put them in the control of the beneficiaries. It’s the only reliable way to keep politicians’ hands out of the pension cookie jar and, ultimately, out of the taxpayers’ pockets. It would force local governments to budget for and fund (in real time) new benefits granted or new employees hired. If the pensioner hands all of her money over to Bernie Madoff, that’s her folly. The current crisis is a joint-and-several folly forced on all of us. It would be a little harder for politicians (the Madoffs of the “guaranteed by law” swindle) to lie to and steal from taxpayers if state employees controlled their own pensions.
The Pension Benefit Guaranty Corp.
Wednesday, February 18th, 2009 | Economics | Permalink | 3 Comments |
The PBGC is the “government corporation that insures the pensions of 44 million workers and retirees.” You get one guess who is going to have to pay the piper on this one. The fund takes over private-sector defined-benefit plans when they are terminated. As the AP reports, nine of the 10 biggest pension terminations guaranteed by the PBGC have occurred since 2001.
If GM or Chrysler tank, guess who guarantees those fat union pensions? The PBGC, which like the FDIC is a taxpayer-funded “corporation.”
More on the public/private pension fund disparity
Monday, February 9th, 2009 | Economics | Permalink | 1 Comment |
Forbes - Gilt-Edged Pensions:
America, in case you hadn’t noticed, is dividing into two nations. The 22.5-million-strong public sector (that includes retirees) is growing ever larger, and enjoying ever greater wages and benefits often guaranteed by state constitutions.
In private-sector America your job, assuming you still have one, hangs on the fate of the economy. If your employer ever offered a pension for life, like young officer Goss is receiving, odds are it has stopped doing so, or soon will. Those retirement accounts you scrimped and saved to assemble? Unless they are invested in Treasurys, they aren’t doing too well. In private-sector America the math leads to the grim prospect of working longer and living poorer.
In public-sector America things just get better and better. The common presumption is that public servants forgo high wages in exchange for safe jobs and benefits. The reality is they get all three. State and local government workers get paid an average of $25.30 an hour, which is 33% higher than the private sector’s $19, according to Bureau of Labor Statistics data. Throw in pensions and other benefits and the gap widens to 42%.
And check the story for Rod Blogojevich’s CALPERS-style desperation move to save the Illinois pension fund.
With pensions seriously underfunded in 2003, recently arrested and impeached Governor Rod Blagojevich rolled the dice and issued “pension obligation bonds.” The idea was that Illinois would issue debt at a cost of 5.1% and then earn 8.5% or so investing the proceeds. The plan turned into a disaster when the market tanked last year. Now short roughly $60 billion, Illinois has barely half of what it needs to cover future pension obligations.
Ouch. Those are the kinds of moves gambling junkies make when they pawn their wedding rings to get enough money to bet on a longshot in the fifth race. Just replace “wedding ring” with “state bonds.”
“If you did not know it before, you do now. California is bankrupt.”
Monday, January 19th, 2009 | Economics | Permalink | 2 Comments |
Mish - Sharing The Pain In California (quoting the San Jose Mercury News):
If Gov. Arnold Schwarzenegger were to fire every employee in state government tomorrow, it would easily patch California’s enormous deficit, right? Not even close.
But surely shutting down all state prisons would do the trick? That, too, would only get him about a quarter of the way there.
Now what if he were to close every prison and cut off funding for health care and other services for the poor? Now we’re in the ballpark.
I’d like to see how the state’s public pensions stack up to that $40 billion projected deficit. Mish has lots more.
If you did not know it before, you do now. California is bankrupt. So is Ohio. So are numerous cities like San Diego. All told, 44 States Face Huge Budget Shortfalls. My big fear in this mess is that Obama will attempt to bail out the states before much needed reforms are made. Such actions will only postpone the problems.
Previously
- CA pension loses 25% of assets since July 1 due to real estate investments
- California will lead states seeking bailout
- How did Vallejo, California go bankrupt?
- Goldman Sachs warns on NJ, CA, WI, FL, OH, MI bonds
- Britain’s public pension problems
- Vallejo, California declares bankruptcy
- How irrational are California public pensions?
- State pension funds heading for insolvency
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