State, local pension fund investments keep falling behind

By   /   June 28, 2012  /   News  /   1 Comment

By Watchdog Staff

State and local pension fund investments in the first quarter of 2012 continued to fall behind ability to pay promised benefits.

WASHINGTON, D.C — State and local pension fund investments in the first quarter of 2012 continued to fall behind ability to pay promised benefits, according to analysis of data released Thursday by the U.S. Census Bureau.

Census “Quarterly Survey of Public Pensions” takes information from the top 100 of more than 3,400 state and local pension plans representing 89.4 percent of “financial activity.”

Those data show the pensions, which constantly must earn enough on investments each year to pay current benefits and grow in value enough to pay future benefits, grew only 0.73 percent during the first quarter of 2011 and remained $51 billion below their 2008 peak.

At the approximate 8 percent discount rate assumed by most public pension plans, their investments effectively fell more than $1.5 trillion short of goal from the first quarter of 2006.

Because public pension benefits are considered to be guaranteed under most legal interpretations, taxpayers have to make up any shortfall. Including accrued and projected benefits, that total shortfall over the next three decades was more than $4.4 trillion as of 2011, according to economists Joshua Rauh and Robert Novy-Marx.

That means so far this year the unfunded liability has increased to the equivalent of almost $5 trillion.

Investment performance reported Thursday by Census shows the burden on taxpayers – which is in addition to any other tax increases or revenue from economic growth – continues to increase.

Total value of “Cash and Security Holdings” in the first quarter of this year was $2.76 trillion compared to $2.74 trillion in 2011.

That is an increase of $67 billion from first quarter 2009, about 32 percent, but represents only a cumulative gain of 6.6 percent since 2006 compared to the 59 percent cumulative gain needed to fulfill pension promises.

Earning on investments totaled $179 billion, about 6.5 percent of investment value and a gain over 2011. Total pension payments in the first quarter were $55 billion, an $11 billion, or 5.5 percent, increase over 2011.

Total payments in the first quarter of 2012 were $20 billion higher than 2006, an increase of 57 percent.

The bottom line is that since Census began the survey in 2006, total payments increased 57 percent, but investment value in increased only 6.6 percent and income for the quarter was only 39 percent higher than the same period six years ago.