KEEGAN: Latest data show public pension death spiral locking in

By   /   September 28, 2012  /   1 Comment

By Frank Keegan | State Budget Solutions

Frank Keegan

Even though taxpayers and government workers dumped almost $32 billion into the top 100 public pension funds in the second quarter of this year, the value of pension fund holdings declined by $57.6 billion from the second quarter 2011.

The numbers are in the U.S. Census Quarterly Survey of Public Pensions released Thursday. The Census collects data every quarter from the biggest 100 state and municipal pension funds representing 89.4 percent of total public pension fund value. There are 3,418 state and municipal pension funds in the U.S.

The worst news is that earnings on investments were a negative $14.2 billion, a $66 billion decline from the same quarter last year. These pension funds paid out $53.4 billion in the second quarter, putting a year-over-year hole of at least $68 billion in capacity to pay future benefits.

In fact, if pension funds had grown at the rate promised by politicians, they would have grown to the equivalent of $4.1 trillion instead of the actual $2.7 trillion reported.

Guaranteed pensions must use current contributions to invest to pay future benefits and pay current benefits only from investments made when the benefits were earned.

In the second quarter, pension funds apparently had to pay benefits from holdings and make up for lost income. They could not invest any contributions made now to pay promised benefits in the future.

This was the fourth quarter out of the past six in which earnings on investments fell short of total payments.

That means to pay future benefits through 2036 at the official growth rate promised by politicians and pension fund managers, they actually will have to earn 9.9 percent, and there cannot be any economic downturn.

Even before the Great Recession, public pensions did not have enough money to pay promised benefits, but counted on investment gains to make up the difference.

Public workers contributed $10.3 billion to pension funds in the second quarter, and taxpayers directly contributed $21.4 billion through governments.

Numerous recent studies by a wide array of economists determined that under current policy and as presently operated, public pension funds eventually will run out of money. Employees and retirees covered by some plans will not get full benefits.

Frank Keegan is editor of a project of 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.

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  • Voice in wilderness

    Great analysis. I have been trying to convince state employees that they are being robbed by a ponzi scheme. Defined contribution plans must be implemented to stop the bleeding. We will have to cover transition costs but as long as taxpayers can see light at end of tunnel, it will be doe.