Wednesday, September 26, 2012

States cut pension costs but it's not enough

The Wall Street Journal reported last weekend states are cutting back on public employee pensions but to no avail:

"Almost every state in the U.S. has made cuts to its public-employee pensions, seeking to dig out from the economic downturn, but so far the measures have fallen well short of bridging a nearly $1 trillion funding gap.

Since 2009, 45 states have rolled back pension benefits for teachers, police, firefighters and other public workers, including cuts by Michigan and California this month. Next week, Republican Ohio Gov. John Kasich is expected to sign legislation requiring, for example, that certain teachers work longer and pay more toward their pensions.....

But the new laws have trimmed just $100 billion out of the $900 billion gap between what the states and their workers put into their retirement plans and what the states owe in retirement benefits, according to estimates prepared for The Wall Street Journal by researchers at Boston College.

Unfunded liabilities in many states grew to troubling levels after investment losses in the 2008 financial crisis depleted pension assets. While most states have approved some form of pension cuts, many have opted to apply those changes only to workers who have yet to be hired.

That means most of the savings won't be realized for decades, when the most expensive retirement benefits come off the books. Changes made to the retirement plans of newly hired workers are expected to reduce pension costs by 25% over the next 35 years, according to Boston College estimates.

For years, part of the attraction of public service jobs has been guaranteed pensions and other benefits. That remains largely intact for current workers. Only a handful of states have replaced some guaranteed pension benefits with 401(k)-style retirement accounts that are commonplace in U.S. corporations.

Experts say the differences between public and private retirement benefits will eventually narrow as cuts to new workers' plans take hold."


Some have suggested Mississippi roll back the 1999 increases to PERS. However, some states tried that only to run into legal problems:

Many states have avoided reducing benefits for current workers or retirees, saying the plans have legal protections. Courts in Minnesota and Colorado have ruled that cost-of-living raises can be reduced.

"There is a lot of gray area,'' said Alicia Munnell, director of the Center for Retirement Research at Boston College. More states could try to cut future benefits for current workers because the laws aren't clear, she said.

Earlier this month, California Gov. Jerry Brown, a Democrat, signed pension reductions he called the "biggest rollback to public pension benefits in the history of California pensions." The changes, mostly for newly hired workers, are expected to save the state retirement system as much as $55 billion over the next few decades. But the measures won't immediately reduce unfunded liability, said spokesman for Calpers, the state pension fund. .....

The $100 billion reduction in unfunded liabilities comes from such states as Rhode Island and New Jersey, which suspended annual cost-of-living raises for retirees, according to the Boston College estimates.

States also have shifted more pension costs to employees. As of 2010, state workers were paying 10% more toward their retirement plans compared with three years earlier, according to Boston College. These increased contributions will gradually reduce unfunded liabilities.

Some states say they need more immediate relief.

On Friday, the Teachers Retirement System of the State of Illinois said its pension bill to the state would increase by about $300 million in the fiscal year that starts next July. The higher costs derive from a pension board decision to lower its assumed rate of investment return, citing the "volatility of the world economy."

The lower the expected return, the more the pension's unfunded liabilities grow—unless the state fills the gap with higher contributions from employees or taxpayers, or tries to cut benefits.

Illinois lawmakers had a chance to address the deepening hole last month but they couldn't agree on a bill to limit cost-of-living adjustments. "Changes of some sort are necessary and everyone expects them to happen,'' said Richard Ingram, executive director of the Illinois teachers' pension fund.

In Ohio, lawmakers this month passed a series of changes that touch current and retired workers, along with new hires.

Many of the state's public-employee unions supported the pension cuts less than a year after they fought a bruising battle with Republican lawmakers to retain their current rights to collective bargaining. But on the pension issue, many state labor leaders agreed that their members' retirement benefits needed to be trimmed.

"It is a tough pill to swallow,'' said Kevin Griffin, who is president of the local teachers union and an English teacher in Dublin, Ohio.

An educator since 1994, Mr. Griffin will now have to retire later and pay more of his salary to receive a smaller pension.

"We had to make the math work," he said. "It came down to the question of whether there will be a pension there for me when I retire or not."

Not all unions are cooperating.

Rhode Island, for instance, shifted some workers into a retirement plan that combines traditional pension benefits with 401(k)-style accounts that leave investment choices to employees.

A group of labor unions and retired public workers have filed lawsuits in state court challenging the pension changes passed a year ago."
Article

4 comments:

KaptKangaroo said...

So, I have a question.

What part could bankruptcy filings come into play here? Could a state declare bankruptcy? I really don't know the answer.

If not the state, what about declaring PERS insolvent and then asking for Bankruptcy courts to reorganize it?

Given the paltry trimmings cited above, this is going to get much worse before it gets better and much worse still for recipients who are holding out and not "giving their fair share" like the 1%. B/C frankly, pensions are dinosaurs in the private sector (and should be in public sector too). Very quickly those who are receiving these types of benefits will be the new 1%ers and will be asked to contribute like the current demands on the wealthy today.

Col. Reb Sez said...

States cannot declare bankruptcy, only municipalities. I think states do have broad discretion to make changes in pension payouts.

The biggest determinant as to whether a state will or will not prosper over the next 30 years will be whether the state has to jack up tax rates to pay for unfunded liabilities. Aside from its pension problems, California schools have been financing construction with zero-coupon balloon bonds yielding 12-14 percent. That way they don't have to pay anything for 20-30 years and kick the tax liability down the road because they CAN'T AFFORD IT NOW.

Every day Mississippi refuses to address this problem results in a dimmer future for our children, and that's not just talk.

Shadowfax said...

A state cannot declare bankruptcy and PERS can't be declared insolvent because it isn't. There ya go Cap'n.

KaptKangaroo said...

It is getting close Shadow. Tick-tock, tick-tock,



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In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


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This is definitely a Beaver production.


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There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

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