Pension woes a national issue

Pension woes a national issue

Sometimes, even double-digit gains aren't good enough.

The stock market boom over the past year has been a blessing for public pension funds across the nation, but it's not nearly good enough to undo the damage by years of underfunding.

Recent news reports indicate that retirement funds for public employees, including police officers, firefighters and teachers, enjoyed "median returns of 12.4 percent" for the fiscal year that ended on June 30.

That is, in historical context, an amazing return on investment, the best result since 2014. But one year's boom is not enough to make up for underfunded pensions that face obligations far in excess of their ability to pay.

The Wall Street Journal reports that total estimates of public pension funds show a collective shortfall of $1.6 trillion to $4 trillion.

That shocking number is the result of years of public officials ignoring their pensions obligation, either because they didn't have the money to contribute or preferred to spend it elsewhere. Public pension funds also overestimated the returns they would make on investments and suffered from economic recessions, the most serious of which occurred in 2008-09.

It will come as no surprise that public pensions in Illinois are among those in the most serious financial trouble, thanks to years of irresponsible funding decisions.

"Few states are having more trouble with these issues than Illinois, which has struggled for years to agree on budget priorities and paying for mounting pension liability. One result is that the fund that oversees retirement money for state employees, judges, and lawmakers now has just 35 percent of what it needs to pay for all future retirement obligations," the Journal reported.

The Journal neglected to mention teachers, who are among those covered by separate pension funds for lawmakers, state employees, university staffers and judges. The four funds are collectively underfunded by at least $130 billion, and the required minimum payments the state must make each year are hampering the ability of the General Assembly to fund core state functions.

For example, the Legislature just approved a dramatic tax increase — from 3.75 percent to 4.95 percent, a 32 percent increase — that is expected to generate roughly $5 billion.

That $5 billion represents Illinois' required pension contribution, and that won't even keep the underfunding level from increasing.

Illinois' pension funds enjoyed a 12 percent return for the fiscal year that ended June 30, but Marc Levine, chairman of the Illinois State Board of Investments, predicts the current $130 billion underfunding number will increase.

"Maintaining our funding level would require investments returns over 20 percent annually. That's not going to happen," he said.

Other states are in equally bad shape. While having an annual return of 14.3 percent on its investments, Connecticut's state employee retirement fund is just 35.5 percent funded. Its teachers' pension system has just 56 percent of the assets it needs to meet its obligations.

California's public employee retirement system, the largest in the nation with $332 billion in assets, saw an investment return of 11.2 percent and an improvement in its funding levels. But it still has only 68 percent of what's required to pay future benefits, up from 65 percent in 2016.

Considerably complicating the pension question is that markets don't always go up.

They also go down, and it's hard to predict when.

An economic recession would be a disaster for many years, not the least of which is that it would make pension issues that already are bad even worse.

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aantulov wrote on August 16, 2017 at 8:08 am

I don't believe the stock market is the problem with pensions. It's all the people the this artical did not mention who participate or more accurately, manipulate the funds, and our perception of them, EXECUTIVES, ADMINISTRATORS, ELECTED STATE OFFICIALS,TECHINICAL PROFESSIONALS many who manage funds and have no need of a pension and statically have long life spands. It's time to by attrition, to put caps on their windfalls and redefine who gets pensions. Let's start with elected state officials - the group that slashed what teachers get while strangling our budget with empty rhetoric.
If you partcipate in a pension ask for the written material, and learn how it works, regularly meet with others to monitor its changeable bylaws.
We can't change what been done, but we can change by attrition without destroying the system.

Stephen Douglas wrote on August 20, 2017 at 1:08 pm

Not a national issue. Websearch "Global pension crisis" and see how many hits (and horror stories) you get. And it's not just "pensions", it is a retirement issue. If you have a 401(k) or IRA and have been religiously contributing 6 percent of income to get a 3 percent match, you lost a bundle in 2008-2009. You might have "made that money back" since then, just as the pension systems did, but you did not "make back" that magic compounding on the money you lost. And it's not just public pensions and 401(k)s. Many private sector pensions are in the same boat. But it could be worse (and is) for those 401s who shorted themselves all along by contributing only 3 percent for a 1 1/2 percent match (or less). You have a lot of catching up to do, or will settle for a bleak old age. This is what happened to the worst-off states (New Jersey, Illinois, Pennsylvania, Connecticut, Kentucky, et. al.)   "DON’T PAY THE BILLS, THE DEBT GETS LARGER" (Mary Pat Campbell) Any well run pension system or personal retirement savings plan can weather normal economic cycles. 2007 was not normal, and many pension systems were (are) not as well run as others.