To expand on my comments from this post, the Huffpost has reported on the public pension problem. They cites figures showing that public pensions had a shortfall of $757 billion. See below
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1) Public pension funds face real funding challenges in a majority of states.
In fiscal year 2010, public pension funds as a whole were only 75 percent funded and had a shortfall of $757 billion between what they should have set aside to pay for the benefits promised to workers and retirees and what they had on hand. While some states, like New York, North Carolina, and Wisconsin, have well-funded and well-managed plans, the majority of states face significant challenges. Thirty-four states were less than 80 percent funded -- a threshold many experts recommend for health pension systems.
This problem is the result of a decade of states taking pension holidays and raising benefits without paying for them, not the Great Recession. Investment gains of 20 and 13 percent in 2009 and 2010, respectively, were not nearly enough to overcome losses from the financial crisis, and pension funding levels continued to drop. The weak returns of less than 1 percent at the end of 2011 also show how hard it will be for states to invest their way out of this crisis. Initial projections suggest that funding levels will be stagnant in fiscal year 2011, and in some states will continue to drop.
2) The funding gaps have real impacts on taxpayers and states' budgets.
The pressure on state budgets springs from policy makers' failure to keep up with their pension fund contributions. States don't have to close the $757 billion gap in one year or even five. Like a home mortgage, they can spread the costs over 30 years. But they have to make their full payments as recommended by their actuaries, and each year they underfund their pensions, their costs will grow.
New York and New Jersey both had fully funded pension systems in 2000. In the following decade, New York consistently made its full contributions into its pension plans, while New Jersey failed to do so. Now New Jersey has an unfunded liability of $36 billion. To catch up, it will have to contribute $2 billion per year more than New York, even though New York has a much bigger pension system. That's $2 billion that New Jersey could be using to build roads, improve schools, and offer raises to police officers and teachers.
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Still and not to put a finer point on it, municipal bond investors appear to think that this shortfall will fall hard on either pensioners, tax payers, and/or public services. For instance, see the price chart of the PIMCO California Municipal Income Fund (ticker PCQ).
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1) Public pension funds face real funding challenges in a majority of states.
In fiscal year 2010, public pension funds as a whole were only 75 percent funded and had a shortfall of $757 billion between what they should have set aside to pay for the benefits promised to workers and retirees and what they had on hand. While some states, like New York, North Carolina, and Wisconsin, have well-funded and well-managed plans, the majority of states face significant challenges. Thirty-four states were less than 80 percent funded -- a threshold many experts recommend for health pension systems.
This problem is the result of a decade of states taking pension holidays and raising benefits without paying for them, not the Great Recession. Investment gains of 20 and 13 percent in 2009 and 2010, respectively, were not nearly enough to overcome losses from the financial crisis, and pension funding levels continued to drop. The weak returns of less than 1 percent at the end of 2011 also show how hard it will be for states to invest their way out of this crisis. Initial projections suggest that funding levels will be stagnant in fiscal year 2011, and in some states will continue to drop.
2) The funding gaps have real impacts on taxpayers and states' budgets.
The pressure on state budgets springs from policy makers' failure to keep up with their pension fund contributions. States don't have to close the $757 billion gap in one year or even five. Like a home mortgage, they can spread the costs over 30 years. But they have to make their full payments as recommended by their actuaries, and each year they underfund their pensions, their costs will grow.
New York and New Jersey both had fully funded pension systems in 2000. In the following decade, New York consistently made its full contributions into its pension plans, while New Jersey failed to do so. Now New Jersey has an unfunded liability of $36 billion. To catch up, it will have to contribute $2 billion per year more than New York, even though New York has a much bigger pension system. That's $2 billion that New Jersey could be using to build roads, improve schools, and offer raises to police officers and teachers.
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Still and not to put a finer point on it, municipal bond investors appear to think that this shortfall will fall hard on either pensioners, tax payers, and/or public services. For instance, see the price chart of the PIMCO California Municipal Income Fund (ticker PCQ).
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