Tuesday, January 6, 2009

Over Generous Under Funded Pensions

For those readers who are looking to earthquakes, fires, floods, and a sky ready to fall presaging the end of life as we know it; this post will be your “cup of tea..” It is a case of impending disaster which is, as a practical matter, more threatening than any of the calamities in the first sentence. If this doesn’t cause you more alarm and alert you to the happenings in your individual state legislature and local city and country governments then you care less about the immediate future that I thought.

While the country’s pension funds and healthcare plans are not universally at serious risk, you will agree that more are than aren’t. If you would rather read the reports themselves than my caustic comments I don’t blame you. The device I have chosen is rife with links to verifiable sites and additional information. It is a compilation of postings on Instapundit over recent time outlining the shortfall in a panoply of funding schemes for various groups of governmental bodies of employees. So, get your guts up and click on the link. If you don’t have the intestinal fortitude for this, don’t click and I’ll fill you in on some of the highlights.

We start with a look at Nevada. One of my very oldest and dearest friends is the beneficiary of a state of Nevada pension plan which she rightfully earned. As an employee at UNLV, she retired after twenty years in the early 1990’s. She enjoys a pension that is 131% of the national average of comparable plans. This is a program which has an entry age of twenty years of service, regardless of age, and is under funded by a current $44 million and carries an exponential demand in the future. By not having a minimum entry age, the Public Employee Retirement System payments could be available to the retiree at a possible age of 38 years and place demands on the system for an additional 38 years assuming a life expectancy of 76 years. Although extremely beneficial for my friend, it is fiscally unrealistic.

For a look at Texas, let’s isolate the case of one legislator: “It turns out that, like most government workers, Texas legislators contribute a percentage of their annual salary to their pension. But while their salaries are a meager $7,200 a year, the salary that's used in calculating their pensions is that of a state district court judge: $125,000. As with most public pensions, you have to stay on the job a number of years to qualify — eight years to retire at age 60 or 12 years to retire at age 50. The longer you stay, the bigger the benefit. One article, published a few years ago in the Oklahoma City Journal Record, noted that one Texas legislator who never made more than $7,200 annually as a legislator retired after 39 years of service with an annual pension of $92,704. Not bad for a session that lasts 140 days every other year.”

In New York City, the pension funds were invested in the market which went south. As a consequence, the city’s obligation will have to be picked up by the citizens. They can likely expect to see reduced services and additional tax levies to make up the short fall which figures out to about $3,000 per every man, woman and child.
Even in tiny Rhode Island, the state was forced to “retire” hundreds of workers to accommodate falling revenues. By doing so they over-taxed a burgeoning retirement system that was already under funded. The result was more folks in the plan and fewer folks making contributions. The shortfall was in the tens of millions.

Massachusetts reported that of 106 public pension funds in the state, only 3 were fully funded. 82 of them were below the 80% level which is normally seen as the minimum requirement. Seven were said to be less than 50%. Some of this is a result of a declining stock market but over generous pension allowances are also a factor. Local official insist that this does not indicate that any of the programs are in jeopardy. Another question was raised over the issue of some state troopers who enjoy a salary in excess of $140,000 a year.

Pittsburgh, Pennsylvania is complaining of a short fall to 24% of needs for pensions of city employees. As a result, they fired several financial consultants, (kill the messenger) to give the appearance of action. It is possible they were incompetent but I rather imagine they were no more or less astute than the financial wizards in the major financial centers. If one has the acumen to anticipate markets that well, I would assume they keep it to themselves and profit accordingly. You don’t always bet the pass line.

There are tons more of these on the link which I furnished above. What is the most troubling is the number of these pensioners who are represented by special interest groups who provide a dependable voting bloc for entrenched politicians. To insure loyalty, they promise the moon and deliver programs which are destined to fail. In their minds, “the font of every blessing” is the taxpayer who will probably have to rely upon Social Security because he didn’t have enough left over to save independently.

Since I brought it up --Social Security—let us save that discussion for another day. It also depends on the faith and credit of the republic.

As I examined these various entries I made a notation that very few were reported from such states as ND, WY, ID, SD, UT, OK, and other “back woods” areas. I guess clinging to guns religion encourages more fiscal responsibility. I am certain, however, that there are probably isolated instances of irresponsibility in these backwaters but the general reporting does not suggest it.

What is the solution: slam and lock the barn door now that the horse has been stolen. It will take some stern and unpopular measures or possibly the meltdown of the entire financial system to stimulate action. More importantly, it will require the electorate to pursue their candidates to implement more fiscally responsible actions. Like Smokey says: only you can prevent forest fires and only you can elect people who are sane.

In His abiding love,

Cecil Moon

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