Economists: State, local pension funds understate shortfall by $1.5 trillion or more

Washington Post ^ | 3/3/2011 | Peter Whoriskey

[Qbert]

The pension funds for state and local workers in the United States are understating the amount they will owe workers by $1.5 trillion or more, according to some economists who have studied the issue, meaning that the benefits are much costlier than many governments and taxpayers thought.

Doubts about government pension accounting have been voiced by analysts for years, but with shortfalls in state and local pension plans exacerbated by the recession, the push to refigure pension fund shortfalls has gained political momentum.

The trillion-dollar gap arises from the government method of accounting, which several experts say significantly underestimates the cost of future pension payments.

[Snip]

The cost of pension plans for the approximately 17 million state and local government workers have come under heightened scrutiny in recent weeks, particularly in Wisconsin, New Jersey and other states where governors are struggling to balance budgets and reduce costs.

In Wisconsin, for example, Gov. Scott Walker (R) wants state workers to pay 5.8 percent of their wages to fund the pension.

Even under current accounting methods, state and local governments are facing massive pension shortfalls - at least $344 billion, according to calculations by the Center for Retirement Research and other groups.

But when the accounting is revised to value future payments more accurately, in the critics' view, the amount that pensions are underfunded grows to more than $1.9 trillion, according to Munnell's calculations for 126 large plans.

[Snip]

By comparison, the entire federal debt held by the public is $9.3 trillion.

"By virtually any measure, that's an enormous number," said Jeffrey R. Brown, a finance professor at the University of Illinois who has studied the issue. "When you're short that much money, at some point you have to pay the piper."

[Soul of the South]

It is time governments at all levels were held to GAP accounting used by private industry. In addition, elected officials and senior bureaucrats should be signing the same statements required of CEO’s and CFO’s of publicly held companies in the private sector attesting to the accuracy of the statements. Like private sector CEO’s, the bureaucrats and senior elected officials should be held criminally liable if the financial statements are incorrect.

Monthly spending versus budget statements should be posted on the internet for public view by every federal, state, and local agency within 15 days after end of the prior month. These documents should show spending for the month and year to date versus prior year and budget. Let the people and press do their own auditing of government spending practices and activity.

[WOBBLY BOB]

Reform advocates are spotlighting those with extravagant pensions — $100,000 or more — as a way to get the public’s attention and emphasize that the current system is unsustainable.

http://www.modbee.com/editorials/story/803636.html

Perhaps the real reason why public-sector pension costs have not been tackled is that the full bill has never been revealed to taxpayers.

http://www.economist.com/opinion/displaystory.cfm?story_id=13988606

**Dodging the bill-The great public-sector pension rip-off*

From The Economist print edition
July 9, 2009

JOIN a private-sector company these days and you will be very lucky if you get a pension linked to your final salary. In Britain almost three out of four companies that retain such schemes have closed them to new employees. The cost of paying such benefits, which are partly linked to inflation and offer payouts to surviving spouses, is simply too high now that many retirees are surviving into their 80s.

Yet most new public-sector employees in Britain and America continue to benefit from pensions linked to their salaries. The pension costs facing the public sector are roughly the same as those facing the private sector; their employees are likely to live just as long. But because of the presumed largesse of future taxpayers, governments seem under much less pressure to reduce their pension costs. In 2005 a reform package in Britain raised the retirement age for new state employees, but still left existing employees able to retire at 60.

http://www.pensiontsunami.com/public.php

[harpu]

WOW, 1.5 trillion!!

WOW, the ComPost printed the story...

[detective]

If a private citizen perpetrated this kind of accounting fraud they would be sent to prison and sued. If politicians commit this kind of accounting fraud it is simply business as usual.

[Terry Mross]

Eventually the fiddler wants his money. What do these unions and democrats plan on doing? Tax those who have an income until we’re all equal? Don’t they know that if the wealth is “spread around” they’ll take a cut in pay? Are they that bad at math?

[Qbert]

“Eventually the fiddler wants his money. What do these unions and democrats plan on doing? Tax those who have an income until we’re all equal? Don’t they know that if the wealth is “spread around” they’ll take a cut in pay? Are they that bad at math?”

—They simply don’t care. It’s really no different from what Madoff was doing - “I’m smarter than all these dopes, and I’ll never get caught. If it ever does blow up for some reason- it’s the public’s fault for being so foolish in letting me get away with it for so long.” And then they’ll just demagogue away about needing to raise taxes on “greedy corporations that ship jobs overseas” and blabber about the need for more stimulus.

[Brad from Tennessee]

This information is common knowledge on FOX Business, CNBC and financial news sites. But a Washington Post piece may inject these numbers into the current national debate.

[1010RD]

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