A Fox’s Report On The Condition of the Hen House?

          On March 13 the National Association of State Retirement Administrators reported, “Pension contributions from state and local employers aren’t blowing up budgets. They amount to just 2.9% of state spending, on average.” The Center for Retirement Research at Boston College puts the figure about 30% higher at 3.8%.

Boston College goes on to state “On average, with the assets on hand today, plans are able to pay annual benefits at their current level for another 13 years.” (emphasis mine). They did note that this assumed no future plan contributions and no growth in assets. Probably the real experience over the last few years.

            I’m told a hundred or more times a day that the three largest problems with the Federal Government’s debt are Entitlement programs: Social Security, Medicare, and Medicaid. Yet supposedly Social Security has a ‘trust fund’ that will keep it solvent until the year 2037. That’s 27 years versus the 13 years quoted above. If 13 years is fine, why do we have a crisis with 27 years? The reason ‘cousin’ is that the devil is in the details.

            Notice the caveat “at their current levels”, apparently not included in the analysis is annual cost of living or other types of increases. Remember the Social Security has had none for 2 years; wonder how many state and local retirements systems have had zero increases in individual payouts over the last two years?

            Also there is a big disparity between individual states and local governments. Kentucky has only assets to cover the next 4.7 years, the worst state position. Other states like California, Wisconsin, and North Carolina were listed as having between 17 and 19 years coverage.

            Also of interest 91% of full time state and local government workers have access to defined-benefit plans whereas only 30% of workers at medium and large companies were covered by defined-benefit plans. Care to guess why the private sector has gone from 84% in 1980 to only 30% today? You would be correct if you said costs.

            Also reported was that “on average, state and local pensions were 78.9% funded with about $688 billion in unfounded promises to pensioners”. But the National Association of State Retirement Administrators assures us that won’t be a problem.

            Not even discussed is what is the average State and Local Govt (S&L) pension payout in dollars. Nor the percent of payout versus the S&L pensioner’s last year’s salary. Or the amount that each S&L pensioner puts into the system annually as a percent of their annual pay. Nor is it compared to the average private pensioners situation. Nor is it mentioned that in Arkansas, for example, some local government employees get credit for two years employment for every one year actually employed. Such anecdotal incidents as Bell City, California leave us all with the impression that the government employees may have a much better retirement that we the taxpayers, who are paying for their retirement, have.

            All in all, the article is supposed to rebut the current claim that the government workers pensions are a real issue, at least per the Foxes that are in charge of the hen house. But to review some of their facts:

1. 91 % of S&L government workers had a defined benefit pension versus 30% private employees. That’s a good deal.
2. These pension are 78.9 % funded; that will require the states to put up an additional $688 Billion to just get even with current employees at current salaries. Future ‘negotiated’ benefits or salary increases will add additional funding requirements.
3. Some states like Kentucky appear to have a darn near crisis on their hands. Read that as higher taxes to fund pensions for S&L retirees in the next 5 years.
4. I would agree that the S&L plans at 13 years funded may be better off than Social Security since the Social Security Trust Fund has been spent by our elected folks in D.C. and thus will require new taxes or something to be repaid where as the states plans are rat holed away from the hands of the politicians.
5. The stock market has recovered almost 90 % of its recent decline, yet the funds are still $688 Billion under funded. Cousin, that’s a lot of new tax dollars to come from somewhere.

But rest assured by the National Association of State Retirement Administrators, “Pensions aren’t sapping states”. So when the next political crisis arises to fund these perks, just relax, there really isn’t a problem.