The politicians you elected have made promises they can never keep without destroying your financial well being. The PEW report shows that States are underfunded on their promises by $1.38 trillion to government union workers. BWAAAAHHHHAAAA!!!
This unbelievably high figure is underestimated by about $1 trillion. The annual return assumption used by the government drones running these pension plans is 8%. There is not a snowballs chance in hell of that return being achieved. Using a still optimistic return of 5.5% brings the unfunded liability up to $2.2 trillion. These numbers are so high, that it is difficult to understand how bad it is. But, let’s try.
We’ll use AWD as an example. He lives in Illinois. Their pension plans are unfunded to the tune of $76.3 billion. There are 5.3 million households in Illinois. This means that every household in the state owes $14,400 TODAY to the government workers. Using the true return assumption would bring that number to $22,000.
Are you willing to dish out $14,000 to $22,000 in order for government workers to retire at 50 years old with full pay and health benefits for life?
I didn’t think so.
States with Sinking Pensions
by 24/7 Wall St. | October 19, 2012 at 12:46 PM | General, Retirement
(Istockphoto)By Michael B. Sauter, Alexander E.M. Hess and Samuel Weigley, 24/7wallst.com
Several years after from the financial crisis of 2008, state pension funds continue to languish. According to data released this week by Milliman, Inc. and by the Pew Center on the States, there was an $859 billion gap between the obligations of the country’s 100 largest public pension plans and the funding of these pensions. Most of these are state funds, and state legislatures have attempted to respond to this growing crisis by making numerous reforms to try to combat this growing deficit.
In 2010, only Wisconsin’s pension funds were fully funded. Nine states, meanwhile, were 60% funded or less — this would mean that at least 40% of the amount the state owes current and future retirees is not in the state’s coffers. In Illinois, just 45% of the state’s pension liabilities were funded. In some of these states, the gap between the outstanding liability and the amount funded was in the tens of billions of dollars. California alone had $113 billion in unfunded liability. Based on Pew’s report, “The Widening Gap Update,” 24/7 Wall St. identified the nine states with sinking pensions.
Based on the Pew Center for the States report, “The Widening Gap Update,” 24/7 Wall St. identified the nine states with public pensions that were 60% or less funded as of 2010. From the report, we considered the total outstanding liability, the total amount funded, and the proportion of the recommended contribution each state made in 2010. We also reviewed the level of funding for the 100 largest pension funds in each state, provided by Milliman’s Public Pension Fund Study, which covered a period from June 30, 2009, to January 1, 2011.
5. Louisiana
Pct. liability funded: 56%
Total liability: $41.4 billion (25th largest)
Total funded: $23.2 billion (23rd smallest)
S&P credit rating: AA
In 2010, Louisiana faced an $18 billion funding gap in its public pension system. Lawmakers are not blind to the problem — the Louisiana legislature approved pension reform in both 2009 and 2010, which included higher employee contributions and limits on cost-of-living increases. The legislature passed more pension reform in 2012, which would move new government employees onto a 401(k)-style plan. But the law, scheduled to take effect in July 2013, has been challenged by the Retired State Employees Association and others on the grounds that two-thirds of the legislature, rather than just a simple majority, must approve the pension changes.
Pct. liability funded: 54%
Total liability: $37.0 billion (24th smallest)
Total funded: $20.0 billion (17th smallest)
S&P credit rating: AA-
Pct. liability funded: 53%
Total liability: $44.8 billion (22nd largest)
Total funded: $23.8 billion (24th smallest)
S&P credit rating: AA
2. Rhode Island
Pct. liability funded: 49%
Total liability: $13.4 billion (10th smallest)
Total funded: $6.6 billion (4th smallest)
S&P credit rating: AA
Although Rhode Island paid the entirety of its recommended contribution in 2010 and had consistently paid its full contributions for several years, the state’s public pension system was still just 49% funded. Facing a funding gap of nearly $7 billion, Rhode Island was forced to make difficult changes to its pension system. According to Pew, in 2011 Rhode Island transformed its plans into a hybrid pension and 401(k)-like plan. The state also raised the retirement age from 62 to 67 and limited cost-of-living increases. The total savings from these reforms were estimated to reach $3 billion. Although union lawsuits to block the plan are still ongoing, the state’s Treasurer, Gina Raimondo, told the Associated Press that “Rhode Island is leading the way. I expect others to follow, frankly because they have to.”
1. Illinois
Pct. liability funded: 45%
Total liability: $138.8 billion (6th largest)
Total funded: $62.5 billion (11th largest)
S&P credit rating: A+
Illinois has not completely funded its full annual pension contribution in any year between 2005 and 2010. Just 45% of the state’s pension liabilities were funded in 2010. The underfunding, however, has not led to major overhauls. Over the past year, Illinois governor Pat Quinn has called for an increase in the retirement age from 65 to 67, a three-percentage-point increase in employee contributions, and reduced cost-of-living increases. But intense opposition from state labor unions has stalled the legislation. Standard & Poor’s cut the state’s credit rating in August from A+ to A, pointing to a “lack of action” in tackling the state pension system’s massive unfunded liability. Moody’s Investor Service downgraded the state earlier in the year and warned that further downgrades are possible if no action on pensions is taken.
To see all nine states, click here.
Wyoming Mike says:
Even in ‘lil ole Wyoming we’re a billion short. We’ve been pushing the legislators to make some changes next session. The path of least resistance is to lower the benefits for new hires.
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22nd October 2012 at 7:04 pm
AWD says:
“Are you willing to dish out $14,000 to $22,000 in order for government workers to retire at 50 years old with full pay and health benefits for life?”
AWD says: NO FUCKING WAY!
They’ve already raised taxes every year for several years running, and they still can’t break even. Sales tax is going up faster than a cruise missile. Property taxes are higher than in Boston. Gas taxes are staggering. It’s a socialist nightmare, and the fucking unions keep protesting to raise taxes some more.
Caterpillar and John Deere and headquartered here, and have threatened to pull up everything and move to a different state (Iowa). What will probably happen, the state will threaten bankruptcy, and the democrats will get a Federal bailout.
So, all you fine folks that don’t live in Illinois will pay for union government employee pensions, so they can retire at 50, drive Mercedes, and play at the country club every day. It’s great, good thing the Federal government has so much money to spare.
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22nd October 2012 at 7:21 pm
LLPOH says:
WM – that is a common theme – new hires get less. It really does not address the shortfall, but it is seen as doing something, however miniscule.
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22nd October 2012 at 7:21 pm
Muck About says:
I hate it when politicians “Do Something”, mostly because it’s always the wrong thing to do, benefits the Banking PTB assholes and Wall Street assholes (I wouldn’t call them that if they were honest) and in the long run will just have to be done over, better.
MA
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22nd October 2012 at 7:25 pm
LLPOH says:
Muck – I was think about that today – governments feel they have to do something all the time – and invariably that something involves spending money. Why do they need to do any damn thing? Why cannot they just leave us the fuck alone?
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22nd October 2012 at 7:29 pm
Wyoming Mike says:
LLPOH, I know,, but they’re chicken. Good news is, we’re many years out, so we can actually make some progress. The states above are screwed. Of course, hyperinflation makes the who thing moot.
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22nd October 2012 at 10:15 pm
Novista says:
Warren G Hardin “didn’t do something” in 1920 on the recession that was just 10 months past the last, post-WW1 recession — and the economy recovered in 1921.
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22nd October 2012 at 12:35 am
TeresaE says:
WM, Michigan did that back in the ’90s under Engler. Turned all “real” pensions into a convoluted mix of pension and the guv employee version of a 401(k).
We’re still in trouble.
Politicians seem to only do one thing real well – kick the can.
The poor taxpayer isn’t going to pay $14k to $22k, it is they need to pay $22k MORE. On top of the mess they already have to pay.
AND, my favorite part, how far down the rathole are these plans going to be when the market quits with the pretend levels and falls back to reality? Or, when real inflation is running 10%, the cost of the plan is increasing 6% (COLA) BUT the taxpayers are bringing home thousands and thousands less because deflation is still happening in all the non-protected industries?
Pensions are UNSUSTAINABLE. Nothing can be “fixed” until we address that simple reality.
Europe is showing us the truth. Too bad nobody will look at it.
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22nd October 2012 at 10:52 am
BUCKHED says:
Hmm..the pension cops will riot in the streets when their pensions are cut in half…only to have the SHIT kicked out of them by the police currently on watch…Hmm..poetic justice without a doubt !
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22nd October 2012 at 10:58 am