Tags: pensions | shortfalls | government | investments

CBS News: Government Pension Plan Shortfalls Snowballing

By    |   Tuesday, 27 May 2014 11:42 AM

Across the United States, state and local government pension plans are woefully underfunded, and the problem is growing worse, according to CBS News.

CBS said public pension funding has been falling since 2000, leading to a situation where state and local governments have set aside much less than they need to meet their pension promises. Data from Pew Research showed state-run retirement systems had a $915 billion shortfall in 2012, and that local government shortfalls took the number to more than $1 trillion.

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"As it stands now, it is not sustainable," said Gene Gard, a state municipal bond portfolio manager at Dupree Funds. He said there may yet be a middle ground between raising taxes and laying off workers.

But CBS concluded that trying to change pension formulas so that future workers have reduced pension benefits is politically perilous.

Rachel Barkeley, a municipal credit analyst at Morningstar, estimated every taxpayer in the nation would have to pay $2,600 to make up for all of the shortfalls in state and local pension plans.

But that is only the average. In Illinois, which has the most underfunded state plan in the U.S. by some estimates, it would take $7,421 per taxpayer to put the plan in the black, she said.

CBS reported if the economy continues to improve, and stock and bond markets stay aloft, the crisis could look much less daunting in a few years.

Pew Research found, however, some pension plans are taking too much risk with their investments by placing funds in real estate, private equity and hedge fund investments. The use of so-called “alternative” investment strategies has more than doubled to 23 percent of pension fund assets in recent years, Pew estimated.

“For taxpayers, the downside is that underfunded pension liabilities mean there is less money to go toward other state needs, like education, bridges or helping municipalities with funding needs,” CBS reported. “Plus, a big gap makes state finances look weak, which factors into states' credit ratings and leads to higher borrowing costs.”

Pensions & Investments reported state and local pension funds had $3.05 trillion in assets in fiscal year 2012. State plans held $2.53 trillion of the total and locally administered plans held $521 billion in assets.

Taxpayers were paying most of the freight on those plans. Employees were contributing only 30 percent of the monies, while local governments were paying 40 percent and state governments were shouldering 30 percent.

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Across the United States, state and local government pension plans are woefully underfunded, and the problem is growing worse, according to CBS News.
pensions, shortfalls, government, investments
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2014-42-27
Tuesday, 27 May 2014 11:42 AM
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