By Frank Keegan | State Budget Solutions

Frank Keegan

They just keep on letting politicians pick their pockets. Latest official public pension data — the most optimistic available — compiled by Census show investments administered by states fell short more than $1.2 trillion even by their own trick accounting from fiscal year 2007 through 2011. Yet managers scraped off at least $45 billion in “Other Payments” to enrich a handful of insiders.

A study just released by two think tanks confirms taxpayers and public workers are paying huge fees for public pension funds to underperform standard market indexes.

For some reason beyond comprehension, municipal and state workers continue to cling to the people ripping them off and aiming their venom at innocent taxpayers who are expected to pick up the tab.

The study by Maryland Tax Education Foundation chairman Jeff Hooke and Maryland Public Policy Institute visiting fellow Michael Tasselmyer focuses on that beleaguered state’s dismal performance and high fees, but compiles national data for comparison.

“The 50 systems had total assets of over $2 trillion. In 2011, they spent over $7.8 billion in Wall Street fees, despite the lack of evidence that active management provides higher investment returns,” the study found.

Taxpayers and public workers actually paid these experts to lose $230 billion over a period when they promised to gain more than $1 trillion.

For some reason, public workers expect taxpayers already massacred by Wall Street to make up the difference.

Worse, because of the flawed fundamental structure of the public pension system, “pension obligations” increased almost 27 percent and “covered payroll” went up almost 20 percent even as the money to pay benefits declined.

That fatal combination of increasing obligations, cheating on contributions and failing to perform on investments left a long-term pension liability of $4.6 trillion, according to my analysis.

Investment performance through the first quarter of this year shows the catastrophe getting worse every day. Investment holdings were barely $20 billion above 2011 and less than $40 billion more than 2007, leaving them at least $950 billion short of promised performance for the equivalent calendar year quarter.

In just five years, for every dollar public employees contributed to these pension funds, managers lost $1.42.

Out of 21 quarters through March of this year, earnings on investments fell short of paying expenses in nine, much less contributing to growth needed to pay future benefits. In six quarter, earning and total contributions were not enough to pay the bills.

That means pension fund managers had to take money from taxpayers and workers that was supposed to be invested for future pension benefits and use it to pay expenses, including current benefits.

Among those expenses was about $8 billion a year — at least — paid to the very people who failed to perform.

At the same time, pension fund managers are shifting toward higher fee, higher risk investments — the opposite of what they should be doing as millions of workers near retirement — just setting up taxpayers and public employees for a bigger fall in the next market crash.

Girard Miller, recently hired as chief investment officer for the Orange County, Calif., pension system and a long-time reform advocate, warned state legislators gathered in Chicago last week, “we are going to have another recession, and if you don’t get your pension problem fixed now, you never will.”

He said all the “reforms” passed by 44 states in the past three years had zero impact on the unfunded liability, which continues to grow.

A study this year of U.S. and other nations’ public pension policies found that, “U.S. public pension funds behave different from all other pension funds and not in line with economic theory. … Hence, a major worry is that their increased risk-taking is reckless and could lead to substantial future costs to taxpayers or public entities if their more volatile risky investments fail to meet the expected rates of return.”

The authors called for “drastic reform” of fundamental U.S. policy because it now “… amplifies the risk that DB (defined benefit) plans will run out of assets before they run out of liabilities.”

One state that has turned the risk of running out of money into a sure thing is Illinois, which Friday is considering totally inadequate reforms. Public employees are fighting even those, despite the fact there is no way taxpayers can pay their pensions in the future.

I put Illinois pension debt at more than $200 billion now. In just five years official obligations in that blighted state increased almost 28 percent. Covered payroll rose 54 percent.

Yet value of the investments to pay those obligations dropped almost 6 percent. Taxpayers and public employees paid out more than $1.7 billion to get shoved deeper into the abyss.

Instead of attacking taxpayers, why don’t public employees go after the people who took their money and lost it?

Why don’t they dig into their pension funds and find out who got rich off their loss?

If they don’t, they are just chumps who keep feeding the pension thieves.

Taxpayers did not steal their pensions, politicians did.

Frank Keegan is editor of Statebudgetsolutions.org a project of sunshinereview.org. The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability.

Contact Frank Keegan at frankkeegan@statebudgetsolutions.org