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This Is Reform?
No One Is Safe from Pension Disaster

A wave of reform swept the nation after the recession decimated public pension systems, but that wave in many cases has been too weak to stave off the coming crisis. In pension after pension, the gap between funding levels and future liabilities continues to grow.

The problems vary somewhat from state to state state, but the most common issue with the reform measures passed so far is that they let states off the hook, requiring higher contributions from workers but keeping state contributions flat. New Jersey provides a pretty clear illustration of this approach in action, as the NYT notes:

Governor Christie’s office said the system’s “funded ratio,” a widely recognized indicator of pension health, had leapt to 65.2 percent after the 2011 changes, up from 56.4 percent before them. His office forecast savings of $122 billion over the next three decades.

But while the pension cuts helped lower the cost of the system, the state also created a new, 38-year funding schedule that began with no payment for one year. That was followed by a seven-year interlude, called “the ramp,” during which the state would gradually work its way up to proper funding. […]

But by 2018, the state itself forecasts, its system will have become shakier, with a funded ratio of just 52.3 percent, down from 2010, because its contributions will have trailed far behind the cost of the plan during the seven-year “ramp.”

Even in the best case scenario, the delay in the increase of state contributions will make the whole process more expensive than it would have been if the state simply bit the bullet and upped its contributions immediately. We can’t help but notice, too, another example of politicians putting off contribution increases until they are safely out of office. This reminds us more than a little bit of the kick-the-can game—often played with the unions’ full knowledge and support—that got pensions into this trouble in the first place. The fact that many of these reforms are written in a way that leaves current workers’ plans untouched but hits future workers’ benefits hard does nothing to dispel this notion.

To get a sense of the size of your state’s unfunded pension liabilities (as a percentage of state revenues), have a look at this chart:

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  • Anthony

    Another point of view: “pension shortfalls are dwarfed by amount state and local governments collectively spend each year on corporate subsidies (many of which do not create jobs).”

    • Andrew Allison

      Good point, but irrelevant to the discussion. If state and local governments stopped bribing corporations they’d have more money to fund their unfunded pension liabilities, but history suggests that they would find some other way to waste, er spend it.

      • bmurdoc

        Public unions shouldn’t exist and all public employees should receive 401(k)’s. Pensions shouldn’t exist in 2014. They are unsustainable ponzi schemes.

    • Corlyss

      Perhaps, but corporate subsidies = jobs. Pensions don’t, except for the managers of the pension fund itself. I’m hazarding a guess here, but I bet the former faaaaaaaaaaaaaaaaaaaaar exceed the latter.

      • Anthony

        Points of view are often determined… But as some famous economist said: when the facts change I change my mind.

        • Corlyss

          What facts changed? I’m open to suasion.

          • Anthony

            Corlyss, three days ago (I may have been rhetorical, I don’t remember).

      • The subsidies and exemptions only make sense if they produce greater tax revenue in the future than is laid out for them now. By that standard you will have a very hard time indeed finding some state, federal or even municipal program that is successful. We must also consider the implementation which requires hordes of lawyers, a breed we should not be subsidizing, clearly.

        • Corlyss

          I think the link between improved tax revenues (which depends on too many actors to establish a one-on-one correlation between subsidies and resulting revenues), is not the only reason to give subsidies. But since most entitlement recipients don’t pay even a miserable, inflation-eroded dollar in taxes, and every tax dollar they consume is lost to the state for more deserving uses, I’ve never heard a single fiscal reason for “charity” programs. Not one. Not ever. They’re only purpose is to keep the enthralled voters voting for the pols who created the programs.

    • free_agent

      You write, “pension shortfalls are less than 0.2% of projected state product [for a lot of states]”. That’s true and important, but it’s also an ugly fact that states ability to tax is a lot lower than the federal government’s. (I suspect that’s because it’s far easier to move a business from one state to another than to another country.) The number that matters is the needed additional pension payments vs. the projected tax take — because that latter number can’t be raised very much.

      • Anthony

        My purpose/intention was to provide another perspective to Feed; if you note, assertion is in quotation – I have not given matter coverage.

    • free_agent

      You write, “pension shortfalls are dwarfed by amount state and local governments collectively spend each year on corporate subsidies”.

      That’s true, but the significance of that depends greatly on the nature of the subsidies. Some are pure boodle, doing nothing useful for anyone other than the businesses that receive them. But an awful lot of them are effectively a system to apply a lower tax rate to businesses that would have an easier time moving to a state that offered a lower tax rate. A pizza parlor has to stay near its current customers, an auto parts plant can move to anywhere, hence the auto parts plant will get a lower tax rate. And the overall level of income in an area depends a great deal on whether the area has “export” industries, businesses that sell outside of the area. Most of those businesses are very mobile, unless the area has some particular resource (natural or human) that can’t be duplicated elsewhere (or move there).

      Or to summarize, for a lot of those subsidies, if they were removed, the businesses that now benefit from them would not pay higher taxes, they would vanish.

      • Anthony

        See reply below.

  • Andrew Allison

    Correction: Few public employees are safe from pension disaster.

    • free_agent

      You’re certainly right… and it’s because few private employees *have* pensions any more…

      • Andrew Allison

        According to the Department of Labor, “About half of all privately employed people and most government employees are covered by some type of pension plan.”

        • free_agent

          The Dept. of Labor counts defined-contribution plans as “pensions”, I count them as “savings plans”. I only call something a “pension” if it is a defined-benefit plan, that is, if it transfers the risk of longevity onto the employer. And while DB plans are still common in the public sector, they are very uncommon in the private sector now.

          • Andrew Allison

            “When I use a word Humpty Dumpty said, in rather a scornful tone, “it means just what I want it to mean” [/grin]
            You are, of course, entitled to your opinion; the Dept. of Labor subscribes to that expressed at

          • free_agent

            In my opinion, defined benefit pensions and defined contribution pensions should not be labeled with the same word, because the differences between them are greater than the similarities. Defined contribution pensions keep the risks (investment and longevity) on the employee, and except for a few tax breaks could just as well be handled by savings from wages. Defined benefit pensions put the risks onto the employer … which is what makes them so dangerous for employers, and also why they deceive employees (who continue to hold those risks if the employer goes bankrupt).

            And it is that very risk-shifting that caused the passage of ERISA (in the US), which then cause almost all private employers to eliminate DB plans.

            While I’m on a roll, I’ll go so far as to say that the *essential* question about a pension is where it places those risks, and so to create a term that does not specify where the risks lie is an intellectual corruption. And at core, we as a society haven’t been willing to face up to those enormous risks, and so creating the term “pensions” is part of our continuing failure…

  • Corlyss

    Interesting analysis of the pension situation today, including some of the court cases that deal with pensions as contracts, pension entitlement, reductions as opposed to increases:

    You can hear John Batchelor interview & discuss with Epstein the ideas expressed in the above article. It comprises the first two blocks of the hour.

  • If the contributions even stutter the whole contraption comes down. When will the mad scramble for the scraps begin? Sorry folks, it’s already been and done. The peaks showed up in the UAW bailouts, the teacher pension crises of Wisconsin, NJ, CT and probably Your Town. If you are counting on drawing from an old-school pension you had better be half-way to dead right now. Otherwise, floss and sit-ups. Hey! It’s good for you anyhow. Forward.

  • bittman

    These are interesting statistics. I would also like to know the statistics for the various Union pensions in view of the fact that unions have donated over $4.3 billion to Democrat candidates and their causes over the last decade.

  • willbest

    Keep in mind that they are still using ridiculous annual assumptions of 7% ROI or more, so they are substantially more underfunded than they claim. I didn’t think it was particularly relevant though. Nobody is paying this. Union leaders and State legislature combined to screw taxpayer and employee.

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