Latest data show continuing pension pinch

By   /   August 5, 2010  /   No Comments

North Carolina's failure to make its annual public pension contribution for the first time in history underscores the growing problem state and local governments face in funding retirement promises to public workers.

Even prepared states are struggling to fund defined retirement benefits, as the recession and stock market crash continue to reveal years of mismanagement pinching public pensions. 


For the first time in its history, North Carolina failed to meet its annual required public pension contribution, according to treasury department officials.


“While markets are recovering, it will be some time before we are out of the depths of this recession,” State Treasurer Janet Cowell said. “This is a critical obligation for our state that investment returns alone will not make up for.” 


Government figures released this week show total North Carolina pension assets down $3.4 billion from last year, and more than $8.3 billion from two years ago. The slip occurred despite an investment return of nearly 12 percent in the most recent reporting period.


Two years ago, North Carolina had an actuarial funding level over 99 percent, the fourth best ratio in the nation, behind New York, Florida and Wisconsin, according to a recent study. The ratio now stands at 88.7 percent, according to an analysis of treasury data.


The move has sparked criticism that legislators avoided making tough budget decisions.


“Instead of saying, okay we have a structural deficit here, either scale back government or increase revenue, (the general assembly) resorted to gimmicks,” said Mitch Kokai, Communications Director at the John Locke Foundation.


The states funding ratio does not include other post employment benefit costs, which are estimated at $28.8 billion and are less than 3 percent funded, according to treasury figures.


It is not unusual to discount future health care and other post employment costs, experts say.


“Across the country they are basically unfunded,” said Robert Clark, an economics professor at N.C. State. “A few states have allocated small amounts of funds.”


Clark, who has a book due out later this summer analyzing state and local health care benefits, said governments tend to defer costs because they are paying off previously deferred payments.


“Whether it makes sense or not, that’s what they’re doing,” Clark said.


New York is experiencing a similar problem.


Though the state’s pension system is widely considered well funded, Edmund McMahon, President of the Empire Center for New York State Policy, said recent scholarship shows New York and other states are short-changing pensions by assuming optimistic asset performance, usually 8 percent or higher.


“The current accounting standards are very misleading,” said McMahon, who noted the state does not account any other post employments benefits.


An official from the comptroller office said the state’s current unfunded liability is roughly $60 billion, but attempts are under way to close the gap.


“Comptroller Thomas DiNapoli has urged the legislature to create a trust,” said Robert Whalen, spokesman for the comptroller’s office. “It has not yet happened.”


Though New York recently passed a new tier with reduced retirement benefits for future employees, the state’s constitution precludes changing future benefits of employees hired before January 1, 2010.


McMahon said he has heard “some talk” about changing state law to require employee contributions from all workers (those with 10 years service are exempt) or transitioning to defined contribution plans, such as a 401K program, but said don’t expect major changes soon.


“What’s going to happen is the pension funding contributions for taxpayers are going to double and triple in the next few years,” McMahon said. “I think you’ll see something happen then.”


Jonathan Miltimore is a national reporter for The Franklin Center for Government and Public Integrity.