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More public pension problems

By Jennie L. Phipps ·
Tuesday, April 26, 2011
Posted: 4 pm ET

Here's more bad retirement planning news for public employees and for retirees in general, especially those invested in municipal bonds.

The nonprofit Pew Center on the States released a report this morning that said the gap between the retirement and health care benefits that states have promised their employees and the amount that they have actually set aside to pay these bills had widened to $1.26 trillion by the end of the fiscal year 2009 from $1 trillion the previous year. That's estimated to be about 78 percent of what's required.

It's a daunting prospect, although this accounting doesn't consider how much investment returns have improved in the last two years, complains a competing report from National Association of State Retirement Administrators, or NASRA, and the National Council on Teacher Retirement, or NCTR. These organizations report that state and local government retirement system assets totaled $2.93 trillion as of the end of 2010, a 35 percent increase in value since March 2009. In addition, they point out that municipal investment pools enjoyed median returns of 13.1 percent for fiscal 2010.

"Discussions of pension funding should use these more recent figures instead of depressed asset values that are no longer accurate," said Keith Brainard, research director for NASRA. "Out-of-date numbers create misleading impressions about the true financial condition of public pension plans and their state and local government sponsors."

These organizations are rightfully concerned that legislators will react to the fear of serious shortfalls by altering pension plans in ways that shortchange government employees. Plan redesign efforts are underway in virtually every state.

If you're a public employee and worried about this situation, check out these suggestions from Edward A. Zurndorfer, a financial adviser in Silver Spring, Md., who specializes in offering retirement advice to federal and other public employees. If you are retired and heavily invested in municipals, here are some protection strategies from Jonathan Bergman, vice president of Palisades Hudson Financial Group in Scarsdale, N.Y.

No matter which calculation is right, it's clear that paying these bills is going to be challenging for taxpayers, especially those who never had the rich pension benefits many public employees enjoy. Encouraging our government entities to adjust their pensions -- at least those for younger employees -- to more realistic models is the smart thing to do and something that public employee unions shouldn't fight.

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June 08, 2011 at 10:28 pm

Actually public employee pensions represent deferred compensation. As a retired MN public employee I contributed 5% which was matched by my employer. The balance of my pension was to be earned through return on investment. (Add in the 5% salary penalty for work as a public employee see and public employees have paid for their pensions.)

See for an excellent discussion about the cost savings to taxpayers with traditional DB pensions.

A 78% funding ratio over the next 30 years does meet the test for actuarial soundness. Resumption of normal economic growth will fix any current gaps.

Frankly all workers should be covered by the GRA plan as described at The 401K has been a miserable failure both for budget impacts and failure to deliver adequate savings rates.

April 27, 2011 at 2:34 pm

You cannot lump all Public Sector Employees who collect pensions together. I am a public employee, and my modest pension will be 1/3 of what my Social Security. Plus my pension will not even cover the full cost of my health insurance. You need to go after the uppercrust's pensions. The one's who get bonuses upon their retirements that boost their pensions, and makes us with the modest pensions suffer. As a public employee I make less hourly and pay a lot more for my benefits then I would in the private sector. The Taxpayers are attacking the wrong Public Sector Employees.

April 27, 2011 at 9:58 am

Your comment "Encouraging our government entities to adjust their pensions" sounds so easy...but unrealistic. At every negotiations with unions or budget talks, pensions are somehow off limits. Sometimes, unions get a better deal. I would love to bring the pensions down to earth, but have you actually talked to any of the union bigwigs? I'm sure it's like talking to someone on drugs..they are just not "there". They are in their lil old world thinking it's their right to get hefty pensions...screw everyone else. No one has the guts to change for the public good.

Unfortunately, there isn't an easy way until we start declaring bankruptcy and void all contracts and start over. Hopefully when we start over, we actually don't repeat our mistakes.