Illinois is the undisputed poster child for having the worst public pension system in the country.
With roughly 40 percent of the state’s $165 billion pension liability unfunded and the courts refusing to allow an overhaul of its highly flawed system, tens of thousands of public employees are left uncertain about their retirements. The state’s credit ratings has dropped to junk status.
A new report by the Pew Charitable Trust is a painful reminder that despite the economic recovery and improved revenue picture, many other states continue to gamble by operating with huge gaps between their employee pension obligations and revenues funneled into the retirement programs.
Indeed, the gap between what states have pledged to retirees and how much they are actually saving to fund those payments now totals $968 billion as of 2013, a $54 billion increase over the previous year, according to the report.
The picture looks even bleaker when short-falls from local employee pension programs are factored in. Then the overall employee pension gap widens to more than $1 trillion, according to Pew.
Illinois and two other states – Kentucky and Connecticut—have covered less than half of their pension program obligations. Kentucky has just 44 percent of its $42 billion pension obligation covered, while Connecticut has 48 percent of its $48.9 billion obligation covered.
By contrast, North Carolina, Oregon, South Dakota and Wisconsin have covered between 96 percent and 100 percent of their pension obligations.
The report cautions that the latest data still includes losses from the 2008 financial crisis and Great Recession. Once more recent investment returns are fully realized under new accounting standards, it is likely that a majority of states will record a reduction in unfunded liabilities.
“Nevertheless, pension debt is expected to remain between $800 billion and $900 billion for state plans … and will remain higher as a percentage of U.S. gross domestic product than at any time before the Great Recession,” the report warns. “State and local policymakers cannot count on investment returns over the long term to close this gap and instead need to put in place funding policies that put them on track to pay down pension debt.”
There are a number of ways for states to retire their pension debt more effectively, the report notes. Those include shorter amortization periods; steady, level interest payments instead of deferring larger payments until later; and using defined payment schedules rather than refinancing the debt every year.
Yet many states continue to resort to gimmicks and accounting “sleight of hand” to balance their budgets and fill glaring gaps in their employees’ pension programs, according to a separate blue-ribbon study issued in June.
The report, “Truth and Integrity in State Budgeting,” was produced by a task force headed by former Federal Reserve Board Chairman Paul Volcker and former New York Lieutenant Governor Richard Ravitch.
The creative accounting used by states to meet a legal requirement for balancing their budgets includes shifting the timing of receipts and expenditures across fiscal years, floating bonds and borrowing long-term to fund current expenditures, relying on nonrecurring revenue sources to cover recurring costs, and delaying funding of public employee pension and health care benefits — arguably the states’ biggest sin.
“While these actions temporarily solve budget-balancing challenges, they add to the bills someone eventually has to pay,” the report warns. “The never-ending sense of crisis leads to stop-and-go funding of vital programs and stifles the need for serious discussions about policy. It also leaves states vulnerable when economic downturns occur and allows long-term obligations to mount.”
#Dems play musical chairs + patronage and nepotism = entitlement !
I had read that NY was not good either,
There will be a day of reckoning for public servants, and tax bases will continue to drift to favorable areas worsening the death spiral. Public servants will have to learn to do with less as privately employed middle class Americans have watched their real income stagnate to pre 1970's level.
I don't plan on contributing to NY pensions for very long.
True about Illinois and put Caterpillar right on top of the list.
Let me articulate this for you:
"I'm not locked in here with them. They're locked in here with me!!"
HipKat's Blog
Actually, NYS has one of the best funded pensions in the nation (top 5).Originally Posted by Save Us
Silly Wabbit, facts are for kids...
b.b.
HAD
State likely to defer $1Billion in pension payments
March, 2015
ALBANY—State lawmakers are moving ahead with a plan to defer more than $1 billion in pension payments over the next five years, arguing it will help them hold the line on spending increases even as critics warn of long-term risks.
Governor Andrew Cuomo, a Democrat, proposed another five years of “pension amortization” in his proposed $141.6 billion budget, the state's most recent financial plan shows. He's continuing to utilize a program first enacted in 2010, when the state government and municipalities were socked with a spike in required pension obligations to make up for stock market losses related to the 2008 stock market crash.
“It's a bad idea,” she said. “Anything we do to postpone payment, to defer payment, puts those funds in jeopardy. New York is a bright spot—we're pretty well funded—and we don't want to start down the slippery slope to a situation like New Jersey or Illinois where we don't have the funds to meet our obligations.”
The C.B.C., a business-backed group, estimated that the state's deferrals have already resulted in $144 million in interest costs. That figure will run to $780 million if the borrowing continues.
DiNapoli announced in September that the required contributions had dipped for the second year in a row. But according to E.J. McMahon, an analyst for the fiscally conservative Empire Center for Public Policy, uncertainty in stock markets could render the decision to defer payments costly.
“Once you start it, the problem is something like this happens: you find yourself in a hole because there was a spike you thought would go away, and it doesn't,” McMahon said. “The question is when are you going to take your medicine, or are you going to make the future take it? And, what if the future isn't the way you expect?”
http://www.capitalnewyork.com/articl...nsion-payments
Has.
a $1 Billion deferment isn't a significant impact to a pension program that's close to $200 Billion in size.
Look at the funding percentages by state. NY is well over 90% funded.
The states that are in serious trouble have little funded - like Illinois at only 40%.
Is it's solvency based on the stock market?
of course
Willful ignorance is the downfall of every major empire in history.
"Political power grows out of the barrel of a gun." - Mao, 1938
According to the NY Post..."around 70 percent of the New York State Common Retirement Fund’s $180 billion is invested in equities. That asset allocation ensures the next time the stock market plummets, the state’s annual pension bill will spike, just as it did in the wake of past crashes."
so, NYS is racking up 10 years now of deferred "pension amortization". It doesn't take a crystal ball to see where this is going. Had.
Ah yes crystal balls. That's where the money is. Stocks go up. Stocks go down. Stocks go back up again. Shocking... Is the deferment a good idea? No. Will it be disastrous to the pension fund? No.
Glad you at least recognize it's not a good idea, since experts mentioned the "slippery slope" of deferring payments and the fact that NYS has signed onto 10 years of it (to date).
I didn't say "disastrous" - I said it HAD one of the best funded. It is heavily dependent on the performance of the stock market. If and when stocks go down again, what should NYS do? Increase taxes? We're still losing our private sector population as well as our wealthy, high-taxed population. Increasing taxes won't do much good when the majority of the citizenry don't pay any!
THAT, and given the fact that the public sector is the biggest employer, the writing is on the proverbial wall.
Last edited by buffy; July 16th, 2015 at 02:37 PM.
How about a plan where the state of NY offers low cost loans to local governments so they are able to make their pension contributions? That loan money can actually come from the pension bank account.
This is an excellent post. Unfortunately it is fact. Wall street couldn't be further removed from Main street. Zero interest rates, real household net worth hasn't budged in decades, student loan debt bubble, government spending bubble, GDP growth low. A real recovery starts at 3% GDP, now we have lowered our expectations to 2, Didn't we have .7 in the first quarter, Hell it could have even been negative if memory serves. I think it is a bit niave to expect the stock market is going to be insulated from all these bubbles and economic certainties.
It was Freddie Mac and Fannie Mae that brought the house down in 08. That was just one bubble, the Federal reserve and central banks have NO cards to play now. More and more municipalities will have to default. It's a house of cards on top of the greatest Ponzi scheme known in the history of civilization. Unions will be the first to go imho. I really wish I could spend the time in Fairy Tale Land where most of our populace seems to want to reside.
Every bull market eventually ends. And every bear market eventually ends too. I'm not sure why you think that accepting the bull market is real is somehow living in a fairy tale. If you say "it will end" long enough, then sure, of course it will eventually end. That's life in a market economy. It's always been this way. The GDP has been very good the past few years. You're focusing on the 1 or 2 quarters that were bad, but ignoring the other 6 quarters that were excellent.
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