Two more articles on pensions worth reading. The first is from Steve Peoples in the Projo…
Pensions for teachers and state employees will cost Rhode Island taxpayers $397 million next year.
That’s an increase of roughly $50 million, or 14 percent, over this fiscal year. And it represents a significant and unexpected new burden for every city and town at a time when any additional state aid to local communities has all but dried up.
The cost of the state pension system, which covers more than 45,000 working and retired state employees and public school teachers, for the next fiscal year was set by the State Retirement Board this week. The numbers will be used as the state and municipalities craft budgets that will take effect July 1, 2008 — a process that has already begun…
The rising costs are largely because there isn’t enough money in the system to pay for the state’s pension obligations, something known as unfunded liability. The state is in the 7th year of a 30-year plan to pay off its unfunded liability, which has risen from $4.3 billion to $4.9 billion, according to the actuary’s report.
Officials say that the state’s unfunded liability is growing for two main reasons: most retirees are simply living longer; and the fund continues to suffer from the lingering effects of the poor stock market performance several years ago. This wasn’t supposed to happen.
Also, Joe Mysak
of Bloomberg News
has picked up on the municipal pensions story…
Municipalities don’t do a good job of putting money away for pensions. They also aren’t good investors. That’s another part of the puzzle, when it comes to public pensions. You have to save money, and you also have to invest it prudently. On page 21 of [the RI Auditor General’s] 36-page report, there’s a table comparing assumed rates of return to actual rates of return.
The 25 municipalities who run their own pension plans all thought they would make average returns of 7.85 percent. Between 2002 and 2006, they made an average of 4.7 percent.
The auditor general makes a number of suggestions, among them creating a pooled investment trust for locally administered pension plans, and doing away with local plans entirely.
We hear a lot about state pension funds, and almost nothing about the ones being run at the local level. That’s going to change, because the real problems are in the cities, towns and counties.
According to the Rhode Island General Treasurer’s Office
, the state employee retirement system had a 7.5% return
on its investments over the 2002-2006 period. That’s quite a difference from the 4.7% return in the municipal systems.