Pic from previous story
The health of public pension plans — the retirement plans for teachers, firefighters, police officers and other state and local governments — has gotten plenty of attention lately.
Some plans are hurting, and numbers from state and local governments suggest their public pension plans are underfunded by about $1 trillion.
But that gap between what they owe and what they have on hand today is about to look bigger — much bigger, in some cases.
Take Washington state's retirement system. It has two plans "that are not 100 percent funded," says Matt Smith, the state actuary in charge of the plans.
Translation: The money in the pension fund right now isn't likely to grow enough over time to meet the retirement promises the state has made to all of its current employees and retirees.
That part isn't new. What's changing is the way that number is calculated — that gap between tomorrow's obligations and today's investments. The Governmental Accounting Standards Board, GASB, is a nonprofit group that sets guidelines for how state and local governments report their finances, including for their pension plans.
GASB is changing the way governments calculate their pension liability. Their change gets at a fundamental question — how much money is enough?
The way you answer that depends on a single number, called the discount rate.
"You know that William Carlos Williams poem, 'So much depends on a red wheelbarrow'?" says Joshua Rauh, a professor of finance at the Stanford University Graduate School of Business. "Yes. Well, in my world it is, 'So much depends on that darn discount rate.' "
Right now, most cities and states use a number around 8 percent: They assume their investments will earn at least 8 percent per year.
Dave Urbanek, director of communications for the Illinois Teachers Retirement System, says there's good reason to use that number.
"We set the rate of return based on history and practice," Urbanek says. "The TRS assumed rate of investment return is 8.5 percent over 30 years. And over the last 30 years, our actual rate of return has been 9.3 percent."
But Rauh says it doesn't matter what returns have been historically. Assuming that past good returns will continue is risky — he says there's a good chance returns could worsen, and that pension assets won't perform.
GASB seems to agree. It's changing its guidelines on what the discount rate should be.
Under the new guidelines, some states and cities can no longer use that simple 8 percent number. The rules get complicated, but in certain situations, they'll need to use a much lower number — a rate as low as 5 percent.
And the number you use makes a big difference. A pension fund that seems OK with an 8 percent expected rate of return doesn't seem so great at 5 percent. (The lower the rate, the more you have to sock away today to pay the same pensions in 30 years.)
And if you are a pension fund that is already in trouble, this change is the last thing you need.
Take the Illinois Teachers Retirement System again, which has less than half the amount it needs to pay current and future retirees over the next 30 years. Urbanek says the fund is actually 53.5 percent short of what it needs.
But that number was calculated under the current guidelines, using a discount rate of 8 percent. Under the new guidelines, it's likely to get worse.
"I mean, what's happening is that I've got a burn on my arm," Urbanek says. "EMT tells me third-degree burn. I go into the doctor's office and he tells me it's a fourth-degree burn. We have a problem. Depending on how you calculate it depends on how big the problem is."
Urbanek worries this change will undermine people's faith in the retirement system.
Josh Raus and GASB say it's time to lay the cards on the table so everyone can see them. They say changing this number doesn't change economic reality — it just better reflects what that economic reality is.
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Today is
States & Cities Pension Plans are a Huge Issue
Retirement Funds is the Black Hole
While the U.S. Federal Government two party system, argue with no results, almost every state government in the U.S., are facing a harsh reality that is being hidden from every state's citizenship.
State Retirement Funds are hurting in a big way
The Federal Government gave states stimulus funds to help create jobs, but most states used those funds to fill the huge gaps of their long running debts created by mismanagement for decades, as appose to fixing states highways and roads, or creating local jobs for their citizens.
The Huge Budget Challenge for each state is the ability to pay people who have retired from years of service long ago, and these former employees have been collecting good checks monthly, for years, and will continue to collect good checks for years, while the states are not collecting enough funds to cover these pension checks.
Retirement Checks for former Firemen, Police, Teachers, Secretaries, Garbage Collectors, Governors, Mayors, Councilmen, and others, are payments being made from a pension fund pool that is extremely low.
Years of Mismanagement
Corruption, Cronyism, Conflict of Interest, and Bribery have permeated our local governments for decades, and as citizens walk the streets as dumb as mules, they have allowed our elected officials to steal, and rob us all blind.
The Retirement Payments to former employees of each state, amounts to billions for each state, and previously invested moneys that had been set aside for these funds have been used for other reasons by elected officials, and today's contributions to cities and states retirement funds aren't near the amount projected 20 years ago, which puts each state in a huge entitlement hole.
While everyone is focused on the federal government's fight with the nations budget, we have already witnesses several significant cities file "Chapter 11", and many cities around the country are on the verge of having to consider bankruptcy.
As we watch Greece and Italy austerity measures, forcing these nations to cut their budgets down to the bare minimums, this exact requirement will soon be at the doors of many cities and many states around the U.S., in the very near future.
Be very aware of the types of cuts that each state will be willing to remove from their budgets.., in that, the rich have bought local elected officials for decades and in this Presidential election, the United States Supreme Court has ruled in favor of big business and the rich to the extent that, huge amounts of money, unreported, are frankly, buying elected officials and judges.
Social Services, Education, and Programs for children will be the first programs to be reduced, while the rich and big business continue to reap the rewards of their bribes.
Again, State's Budgets are a long way away from being able to pay all the retirement checks that they are obligated to pay and the future retirement checks, for millions of former state employees, have to be part of the future budget considerations in order for any state to be close to being able to meet their financial goals.
The Future of "Retirement" is a huge question mark, and the existing retirees are on the clock and the clock is running out of time.
In My Opinion
ASMFMB
7/22/2012
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