Posted on 02/05/2019 9:29:11 AM PST by SeekAndFind
The second-longest bull market in American history hasn’t stopped the deterioration of state and local pension funds, whose unfunded debt has almost quadrupled—by their own accounting—from about $360 billion in 2007 to $1.4 trillion today. Having relied on overly optimistic and inaccurate financial assumptions for decades, public pension administrators are now forced to acknowledge that the systems owe much more than previously thought. Even as local governments struggle to pay for this debt, it keeps growing.
Concerned that mortality tables for private-sector workers don’t accurately reflect what’s going on among retired government employees, the Society of Actuaries conducted a three-year study of public-pension retirement systems, evaluating approximately 580,000 deaths between 2008 and 2013, across 78 public-pension plans. The study found that, on average, female teachers were living 90 years, while male teachers lived 87.7 years. Female government workers in the general public-pension plans lived to 88.5; male government workers, 85.5. By contrast, the Social Security Administration’s life expectancy tables for the U.S. population show that men who reach 65 can expect on average to live 84.3 years, and women 86.7 years. A Society of Actuaries study of private-sector pension plans shows that members live longer than the general public but shorter than many government workers: men in these systems live on average to about 85.6 years old, and women to slightly more than 87.6 years old.
Workers’ life expectancy is an important factor, of course, in a pension fund’s financial picture. In the private sector, defined-benefit pensions must follow mortality tables issued by the federal government. No such strictures bind public pensions, and as the society’s study suggests, the rates used by government pension systems vary widely. In 2014, several communities in Illinois discovered that officials were using mortality tables from 1971, when life expectancy was much shorter, which vastly underestimated pension costs. The resulting outcry forced those communities to update their calculations, and led to average increases in costs by about 20 percent. Most state plans now use more recent numbers, but even year-to-year adjustments in mortality rates put pressure on communities already struggling to meet pension obligations. After New York State’s retirement system updated its mortality tables in 2015, for instance, localities increased their pension payments from 14.2 percent of salaries to 18.2 percent, according to S&P.
Longer lives for public employees will mean higher costs, and not just for pension plans. Many state and local governments promise to pay for the health care of their retired workers, but few have enough money set aside to do so. A recent analysis by Pew found that states spent $20 billion on retiree health care in 2015, and that, collectively, states owe nearly $700 billion in promises they’ve made to finance their workers’ health insurance in retirement. But that number is undoubtedly higher, given longer life spans.
The additional costs highlight the risks that taxpayers face from defined-benefit public pensions. These plans, which promise workers a certain income when they retire based on how long they work and how much they earn while employed, use complex formulas filled with imprecise assumptions to determine how much the plan should save now for a worker’s retirement. A decade ago, many plans assumed that they could earn an average of 8 percent annual returns in the stock market. But in the last 10 years, plans averaged gains of about 6.8 percent. Under pressure from critics who grasped that the estimates were out of line with actual performance, many pension systems have reduced their projected invested returns—meaning that they project assets will grow more slowly. In 2017 alone, those lower projections added $90 billion to state pension debt.
In about half of the states, added costs from these inaccurate projections fall entirely on taxpayers. That’s because these states have laws or constitutional provisions that limit the ability of governments to alter pensions for current workers for as long as they remain employed. Among other things, governments often can’t require higher contributions from workers themselves; nor can they lower benefits. Consequently, the amount of money that local governments must pay into the system has been rising steadily. As the latest study on mortality rates shows, that trend is going to continue.
A problem when you retire at 53 and live to 90.
New York should legalize super late term abortions. Problem solved.
Darn that math thing.
the correctional officer’s union in Cal used to lie and say COs die within 2.5 years of retirement. Since they retired by 55, this was a scary stat. I’m retired 20 years last May. Looking forward to a long life and pension under the old formula, as is my wife.
And states had laws and state constitutions that defined marriage as between one man and one woman.
All it took was one Federal judge to null/void.
++++++
“That’s because these states have laws or constitutional provisions that limit the ability of governments to alter pensions for current workers for as long as they remain employed. Among other things, governments often can’t require higher contributions from workers themselves; nor can they lower benefits. “
On a related note, by law the social security fund can invest in only 1 thing: U.S. treasuries.
Fuzzy math and politics made this inevitable.
Can I ask a stupid question??
How are there “unfunded liabilities”?????
Because, aren’t there legal requirements to deposit required amounts into the pension funds?
I understand the liabilities have grown, due to longer life expectancy, but aren’t they setting aside money ?? Aren’t there legal requirements as to how pension funds are accounted for and administered?
It’s hard to believe, that they can report there are large unfunded liabilities, and then nothing is done to take care of the problem.
The state ofCal is governed by CALPers. The frequently phony up the projections of investment income to justify increases in payments. And the unions support it and bribe the politcans that vote for the union contracts and benefits.
Icing on the cake: The Cal constitution requires the state to provide funds for any shortages in the pension funds.
The state = taxpayers. And, there ought to be a law to prevent this.
One of my former neighbors was a retired LA city fire Captain. He retired at 55 years old with a full medical. His retirement pay is $135,000(at retirement) with full medical benefits. He will live well into his 70’s. That is just plain crazy.
of course. But it;’s been in the constitution since the pension started, i think in the 50s. The unions and the democrats don’t care what it’s doing to the state. I benefit, even under the old formula, and I know how the system is corrupt. You can’t do much about 72 year olds like me, but Brown was in for 8 years and could have changed it for new hires, and younger employees, and did nothing.
yeah, no maximum. In law enforcement and fire fighting they tack on last year promotions and overtime to bump up your formula with a high paying last year on the job.
I read a book a few years back called “While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis” by Roger Lowenstein which addressed this issue.
There were lots of reasons that contributed but the main one was that is is much easier to promise an increased pension many years in the future that will be paid by future taxpayers rather than offering a pay rise this year which will be paid by current taxpayers.
NYS has the same issue. They are aggressively changing the pension enrollments for new hires to a 401k type system. If they can make it another 30 years they should me O.K. ;)
It boggles my mind why anyone ever thought defined-benefit plans were a good thing.
well that’s something. They could also do employees under 40, give them what they have paid and let them, do their own from here on out. Save the employers contribution up to this point and no employers after this.
Case in point - If a couple has worked enough to give the federal government $25,000 per year in taxes, then at the end of a 40 year work life, they would have $1,000,000.
And that does not include the interest they would have accrued along the way.
Shift to age 60 and 65% pay and see how the projections change.
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