Pension Systems On The Brink

BOSTON (MarketWatch) — A train wreck waiting to happen. That’s the only way to describe the mess that state pension systems are in right now, according to a report published today by the Pew Center on the States. According to Pew, there’s a $1 trillion gap between the $3.35 trillion in pension, health care and other retirement benefits states promised their current and retired workers as of fiscal year 2008 and the $2.35 trillion they have on hand to pay them.

What’s worse, the gap may be even higher given that the study was conducted prior to the market collapsing in 2008 and given the way most states allow for smoothing of investment gains and losses over time.

When Fed exits mortgage market

The central bank is helping to keep rates low and fund loans for home buyers and refinancers, but in March it plans to end its support. Greg McBride at Bankrate.com says buyers still have some time, but if you’re eager to refinance, get going. MarketWatch’s Andrea Coombes reports.

How did this come to pass? And more importantly, what can be done to solve it?

Investment losses account for part of the funding gap. But the bigger problem, according to Pew, is that many states simply fell behind on their payments to cover the cost of promised benefits — and that was even before the Great Recession.

“Many states shortchanged their pension plans in both good times and bad, and only a handful have set aside any meaningful funding for retiree health care and other non-pension benefits,” Susan Urahn, managing director of the Pew Center on the States, wrote in her report.

And now, state policy makers who ignore the current shortfall do so at their own peril. Indeed, states that fail to address under-funded retirement systems face the very real possibility of raising taxes or taking taxpayer money that could be used for education, public safety, and other necessary services just to pay public-sector retirement benefit obligations.

To be fair, not all states are in the same pickle. Illinois and Kansas are in really bad shape. Those states each have less than 60% of the necessary assets on hand to meet their long-term pension obligations, Pew said. Illinois is in the worst shape of any state, with a funding level of 54% and an unfunded liability of more than $54 billion. Meanwhile, nine states had pensions funded above 90% and Florida, Idaho, New York, North Carolina and Wisconsin all entered the current recession with fully funded pensions.

Most experts suggest at least an 80% percent funding level. Pew found that 21 states were funded below that recommended level in 2008. Of those 21, eight had more than one-third of the total liability unfunded: Connecticut, Illinois, Kansas, Kentucky, Massachusetts, Oklahoma, Rhode Island, and West Virginia.

In all, Pew said just 16 states are “solid performers”; meanwhile, 19 are in serious trouble.

continues … States’ pension plans face steep shortfalls Robert Powell – MarketWatch.

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