Pension Problems from Coast to Coast

This can’t be a good sign. They’re now making fun of Rhode Island in New Jersey, that bastion of good government practices, because of our inept pension fund management. John Bury of the website writes that…

Rhode Island’s public pension plans are a basket case. They were 50% funded before the market collapse and bankruptcy is imminent for many. Sensing the seriousness of the issue the state set up a commission on January 30, 2008 made up primarily of politicians and union representatives which issued a report with attachments on June 5, 2009. There were no actuaries invited to be on the commission though they did specify that one of the 19 members should “be a practicing member of the Rhode Island Bar Association who shall have experience in pension law.”
Then he gets serious…
Total it up, take into account recent asset losses, benefit payouts, and continuing accruals and Rhode Island might turn ponzi before New Jersey. This is not a situation that can be rectified by tinkering with retirement ages or moving new hires to 401(k) plans. This calls for either substantial revenue commitments or severe benefit cuts (including for retirees). Those solutions won’t be implemented as long as the politicians and unions who bargained their people into this mess are looked to for ideas on cleaning it up.
And from the other coast comes a warning via the Los Angeles Times that a favorite proposed solution in Rhode Island — consolidating all of the problems and handing them to the state to solve — doesn’t guarantee that things will automatically get better for the localities
Slammed by huge investment losses in last year’s meltdown of financial markets, the nation’s largest public retirement plan faces questions about its long-term ability to make good on the benefits it owes more than 1.6 million workers, retirees and their families.
All Californians have a stake in the fund’s performance: If CalPERS’ $200-billion portfolio comes up short, and state and local governments refuse to cut workers’ benefits, the bill falls to taxpayers — many of whom have no guaranteed pension benefits of their own.
Already, CalPERS has notified state and local government authorities that their contributions to the fund will have to rise beginning in 2011 or 2012, reflecting the steep drop in the system’s assets during the markets’ crash.
Kicking problems up to a “higher” level of government doesn’t solve anything, if the higher-ups ignore the underlying causes of the problems — and moving decision-making to more remote levels of government can often make changing bad policies more difficult.
And this is all, of course, before we even begin to consider the California situation in the context of why anyone thinks that defined-benefit retirement plans are not seriously impacted by market downturns. Just keep this one principle in mind when considering any of the options: in the absence of economic growth, nobody’s plan for a secure retirement is going to work.

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