Despite gains, public pensions crashing

By   /   July 21, 2010  /   No Comments

State and local pensions remain in a hole at least $1.3 trillion deep despite transient gains in the first quarter of 2010. That's about $12,000 for every private sector worker due right now just to get the funds on an even keel.

Each private sector worker in America owes state and local government pension funds at least $12,000 right now just to get them even.

That’s on top of all current taxes, debt, deficits and other obligations. And it doesn’t even include promised health care for retirees, which easily could more than double the cost.

Just the false pension promises politicians and union leaders made to public workers are enough to bankrupt average American households devastated by job losses, crashing real estate prices, looted 401k plans, exploding health-care costs and taxes at all levels taking more out of every paycheck.

Sure, state and local pension funds may have shown year-over-year growth of 19 percent through the first quarter of this year. But calculating where fund value should be since 2001 using their assumed growth rate leaves them almost $1.3 trillion short of what they need to pay promised benefits.

According the U.S. Census Bureau quarterly survey released Monday of 100 largest public-employee retirement systems representing 89.4 percent of all public pension fund value, the first quarter of this year showed continuing growth after more than a year of declines.

“Total holdings and investments continued their quarter-to-quarter climb for the fourth consecutive quarter,” the Governments Division said in a press release.

But that is no reason for taxpayers and public employees to breathe a sigh of relief. Those gains still left pension funds $319 billion below first quarter of 2008 and only 4.9 percent ahead of '05.

That was as of March 31. Markets peaked in April and fell more than 15 percent overall since.

Worse, funds continue to base pension promises on assumptions of 7.5-8.5 percent growth every year forever and politicians making billions of dollars in Annual Required Contributions, which most do not. In fact many states and municipalities loot high earnings during the good years to fund minimum contributions instead of letting the money accumulate to smooth out downturns. 

Calculating where pensions funds should be based on a 7.5 percent return every year for the last decade yields the $1.3 trillion shortage as of March despite first quarter gains.

So merely applying their own official assumptions to pension benefits already earned by workers is enough to stall economic recovery.

This expense is locked in and not lessened by future reforms.

Governments must pay it whether pension funds are available or not. If not, the money has to come out of taxpayers’ pockets and through real operating expense cuts.

Taxpayers are going to pay more, get less. Current and future public workers will have to sacrifice for those who came before them even as they face a future of declining pay and benefits.

 The only people who made out from this catastrophe are the millionaire politicians, union leaders and fund managers who enriched themselves by deceiving taxpayers and workers.

According to Bryan Leonard, a fellow at State Budget Solutions, data compiled from 43 states shows almost $6 billion taken out of pension funds last year for administrative personnel expense, management fees and payments to consultants. He said “Illinois, Massachusetts, Nebraska, North Carolina, Rhode Island, West Virginia, and Wisconsin have yet to respond to inquiries, and the data that they make readily available doesn't report specific expenditures.”

State and municipal leaders must not use small, transient pension fund gains to continue deceiving the people who ultimately will pay for their gross mismanagement.

The least they must do is admit the magnitude of the problem and honestly account it.