Have A State Pension? Don’t Count On It.
BY LANCE ROBERTS
One to the biggest issues that face millions of retiring individuals in the coming years is the grossly underfunded pensions for state workers nationwide. Just recently the PEW Center For The States released their annual update on the status of state pension plans – the bottom line is not good. “States continue to lose ground in their efforts to cover the long-term costs of their employees’ pensions and retiree health care, according to a new analysis by the Pew Center on the States, due to continued investment losses from the financial crisis of 2008 and states’ inability to set aside enough each year to adequately fund their retirement promises. States have responded with an unprecedented number of reforms that, with strong investment gains, may improve the funding situation they face going forward, but continued fiscal discipline and additional reforms will be needed to put states back on a firm footing.”The report, which is based on fiscal year 2010 data which is that latest complete data set available, the gap between states’ assets and their obligations for public sector retirement benefits was $1.38 trillion, up nearly 9 percent from the fiscal year 2009. Of that figure, $757 billion was for pension promises, and $627 billion was for retiree health care.
The problem, however, is not a current development the recent financial crisis but goes back over a decade when pension managers began making aggressive return assumptions of 8% – the same as it is today. With higher return estimations the states were required to fund less into pension plans leaving money available for all sorts of other spending. What they did not account for, however, was over a decade of near zero return growth, two nasty bear markets which decimated investment accounts, two recessions which lowered tax revenue and a weaker growth economy. PEW stated: “Investment losses suffered by pension funds during the Great Recession have been a key driver of growth in states’ unfunded liabilities. About $6 of every $10 in the funds comes from earnings on investments; employee and employer contributions make up the rest.”