Study: States Must Fill $1 Trillion Pension Gap

[one...two...tree 2,762]

By Jim Zaroli, NPR

These are tough times for state governments, many of which are contending with huge budget deficits.

Many states are likely to face an especially daunting challenge in the years ahead, according to a report issued Thursday.

The states have promised big pension and retirement benefits to their employees without putting aside money to pay for them.

The report was prepared by the Pew Center on the States and it portrays a state pension system that's headed for a crisis — if it's not already there.

"The 50 states have racked up more than $3.3 trillion in long-term liabilities in pensions, health care and other retirement benefits that they promised to their current employees and retirees," says Susan Urahn, the center's managing director. "But they have not got any money to set aside to pay $1 trillion which is almost a third of this bill."

Urahn says states often try to compensate for relatively low salaries by offering their employees generous retirement benefits. And they can be very generous.

Connecticut has a series of early retirement programs that allow employees with ten years of service to retire at age 52. Politicians can get away this because the bill won't come due until after they've left office.

"It's an easy omission," says Orrin Kramer, head of the New Jersey Investment Council. "If you underfund, you're passing costs on to future generations of taxpayers but that isn't going to be obvious for a long time."

The report says almost all state pension plans are underfunded. Two states — Illinois and Kansas — have set aside less than 60 percent of the money they'll need to pay benefits. Six others are underfunded by a third or more.

Pew's Urahn says the problem has been exacerbated by the recession which has cut into the value of state investment funds. But she adds states have underfunded their plans even in good times.

"This matters tremendously because how well states manage their retirement costs affects how much money they have to spend on other priorities. And in fact, these costs are already adding significant pressure to already stressed state budgets."

Urahn says states that underfund their pension plans have to make up for it later. She compares what happened to two neighboring states: New York and New Jersey.

Until 2002, both states kept their pension plans adequately funded. But then New Jersey stopped making regular payments. Much like someone who keeps using a credit card while paying only the minimum each month. New Jersey has seen its liabilities soar.

"Fast forward up to 2008," Urahn says. "Now New Jersey's annual bill is $1 billion more than New York's — even though its total pension liability is $15 billion less. So that's the impact of simply kicking the can down the road."

And she says many states may be in worse shape than they appear because they use an accounting technique called smoothing. They average out the value of their investments over five years or so, which tends to obscure the depth of their losses in times when the financial markets have taken a hit, like they have in recent years.

The report also says it's not too late for states to get their houses in order. Simple changes made now, like raising the retirement age by just a year, can make a big difference over time.

But that will require some tough choices by state officials and that's something many of them have shied away from.

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[I AM NOT THAT GUY 5,715]

Study: States Must Fill $1 Trillion Pension Gap

Why? Because the Democrats made promises to the unions to buy their vote? Screw 'em! Let them eat cat food like the rest of the elderly!

[thongd4me 69]

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Yes. Peter Schiff seems to think that one of the next dominoes to fall in this

recession is "entitlements." In a book of his I just finished he was talking

specifically about Social Security and Veterans' benefits as being "unfunded

entitlements" that were bound to be cut back severely because we didn't

have the money to continue existing payments, much less future payments.

Pension funds, on the other hand are supposed to be fully funded & protected,

but many companies figure out ways to turn their funds into "emergency piggy banks."

You don't need to go further to find examples of this than many American air carriers.

Government pensions are also not immune.

Edited February 18, 2010 by thongd4me

[w¡n9Nµ7 §£@¥€r 123]

Why? Because the Democrats made promises to the unions to buy their vote? Screw 'em! Let them eat cat food like the rest of the elderly!

NJ is a state which has a huge pension gap for precisely the reason you state, with one important difference. Both parties are complicit in paying off the unions in exchange for votes. That fact was on full display recently when our newly elected Republican Governor said (and I am paraphrasing) we must "keep faith" with our public sector employees and provide them with the bennies they were promised (or rather, the bennies they extorted from the taxpayer). What's Christie doing instead to raise new money? Well, a fare hike is on the cards for NJ Transit. A fare hike which will primarily hit private sector workers who commute into NYC. White collar workers for the most part. Our gas tax is one of the lowest in the country and that's still off limits, however. That might spread the pain more evenly and we can't have that. God forbid some carpenter pay an extra 50 cents in tolls on the parkway. No, let's suck the white collar private sector worker dry instead.

[one...two...tree 2,762]

Why? Because the Democrats made promises to the unions to buy their vote? Screw 'em! Let them eat cat food like the rest of the elderly!

Shall we look at which state legislatures made the decision to underfund the pensions?

[I AM NOT THAT GUY 5,715]

Shall we look at which state legislatures made the decision to underfund the pensions?

You don't get it, do you? Blackmail and bribery are no way to run an economy.

[one...two...tree 2,762]

You don't get it, do you? Blackmail and bribery are no way to run an economy.

Employee contracts should be honored, whether the employer is a private company or state government.

[w¡n9Nµ7 §£@¥€r 123]

Employee contracts should be honored, whether the employer is a private company or state government.

I agree and yet you're missing the point.

[one...two...tree 2,762]

I agree and yet you're missing the point.

I'm not missing the point. Bill places his outrage with the unions and Democratic lawmakers. State budgets have to go through an approval process and can be vetoed by a governor. I understand there is a lack of accountability with lawmakers who aren't around when these pensions reach their maturity, but to point the finger at the unions is just scapegoating the larger problem...honoring employee contracts.

[w¡n9Nµ7 §£@¥€r 123]

I'm not missing the point. Bill places his outrage with the unions and Democratic lawmakers. State budgets have to go through an approval process and can be vetoed by a governor. I understand there is a lack of accountability with lawmakers who aren't around when these pensions reach their maturity, but to point the finger at the unions is just scapegoating the larger problem...honoring employee contracts.

Unions use their power irresponsibly just because they can. They are a huge part of the problem.

[one...two...tree 2,762]

Unions use their power irresponsibly just because they can. They are a huge part of the problem.

Specifically, how? How are they any different from private firms negotiating state contracts? And how are they able to wield more influence than private firms? Selective scapegoating.

[w¡n9Nµ7 §£@¥€r 123]

Specifically, how? How are they any different from private firms negotiating state contracts? And how are they able to wield more influence than private firms? Selective scapegoating.

Public sector employees can be reasonably expected by the taxpayers to actually care about the fiscal state of the state they work for - and by extension, the fiscal state of the taxpayers they purport to serve.

No similar reasonable expectation exists of private enterprise.

When public sector employees, acting through unions, negotiate benefits for themselves they know to be unsustainable and ruinous, without regard for the taxpayer and only for themselves, they reveal themselves to be unworthy of their positions and their pay. And yes, their benefits.

[Ban Hammer 14,668]

Specifically, how? How are they any different from private firms negotiating state contracts? And how are they able to wield more influence than private firms? Selective scapegoating.

steven, my next door neighbor is in a union - he works in construction. his union told him who to vote for in the presidential election. is that not using one's power irresponsibly?

[mawilson 2,133]

Public sector employees can be reasonably expected by the taxpayers to actually care about the fiscal state of the state they work for - and by extension, the fiscal state of the taxpayers they purport to serve.

No similar reasonable expectation exists of private enterprise.

When public sector employees, acting through unions, negotiate benefits for themselves they know to be unsustainable and ruinous, without regard for the taxpayer and only for themselves, they reveal themselves to be unworthy of their positions and their pay. And yes, their benefits.

:thumbs:

[one...two...tree 2,762]

Public sector employees can be reasonably expected by the taxpayers to actually care about the fiscal state of the state they work for - and by extension, the fiscal state of the taxpayers they purport to serve.

No similar reasonable expectation exists of private enterprise.

When public sector employees, acting through unions, negotiate benefits for themselves they know to be unsustainable and ruinous, without regard for the taxpayer and only for themselves, they reveal themselves to be unworthy of their positions and their pay. And yes, their benefits.

I hate to keep using my parents as examples, but...both of them were state employees (mom - secretary at community college, dad - director of aux. services at a university). Neither one of them had a union representing them or negotiating their pensions. They are both now collecting on their pensions in Arizona and this issue stresses them out.

It's easy to generalize about unsustainable pensions, but it in their case, it wasn't that their pensions couldn't be secure, but Arizona, like many other states chose to take higher risks as well as simply underfunding them. Comparatively, a private company's responsibility is to honor their employee contracts by making sure their employee's pensions are fully funded. Unless you are advocating the end of pension funds, both private and state pensions will continue to exist and should be paid for. As for whether those pensions are reasonable in terms of the amount per retiree, I think you'd have to look at it on a case by case basis, but I can tell you, my parents would get a chuckle if someone suggested to them that their pensions are bloated.

....

Now this makes more sense. I'd like to see any evidence that unions are the ones who are to blame for this: (neither of my parents' pensions are anywhere close to these numbers below)

The Chicago Sun-Times found that about 4,000 retired Illinois government workers are now drawing pensions in excess of $100,000 per year. Because Illinois pensioners get an annual inflation adjustment after retirement, the Sun-Times found that 14,000 state retirees now draw more in pension payments than they earned when they were working for the state.

Some of the sums paid out are astounding: Dr. Alon Winnie, former head of anesthesiology at Cook County Hospital and the U of I Medical Center draws two state pensions that add up to $447,233 annually. U.S. Senator Roland Burris, who previously served as Illinois comptroller and also as state attorney general, retired in 1995 at the age of 57. His current pension from the state is $121,747 (besides his salary as a U.S. senator). Dawn Clark Netsch, another retired state comptroller, gets $114,733 a year and has collected $1.4 million since she retired in 1995.

Anyone who has worked for the state is certainly entitled to a fair pension upon their retirement. But the president of the watchdog organization Civic Federation, states: "(Illinois state pensioners) are drawing pension benefits far richer than they would in the private sector."

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