Thursday, March 15, 2012
We've covered a lot of aspects of the ongoing recession/depression.
Now its time to address a new topic for us:
Specifically, unfunded pensions. And from this lack of funding, will come pension cuts which are going to be occurring at some point in the near future at a rate so rapid in speed and broad in scope that most people dependent on that monthly check are unfortunately going to suffer greatly. State, cities and county governments simply do not have the funds to cover what is owed to pay out to those who've spent their lives putting into the system.
Right now, they're all just playing for time.
According to Northwestern University Professor John Rauh, the latest estimate of the total amount of unfunded pension and healthcare obligations for state and local governments across the United States is 4.4 trillion dollars. Where is that $$ going to come from? Either pension benefits are going to have to be cut deeply all over America or taxes will need to be raised dramatically.
Pick your poison.
There simply is not enough money out there to keep all of the pension commitments that have been made. Something has got to give. In the end, millions will likely be plunged into poverty as pensions disappear because when governments declare bankruptcy, their obligations to pensioners are among the first things to disappear.
Here's a sampling of the mess that awaits:
* In Pennsylvania, PSERS (Public School Employees' Retirement System) has an accrued unfunded liability of nearly $26.5 billion, the amount of money the fund is short to cover existing retirement benefits. That hole is expected to grow to $43 billion by 2019. SERS (State Employees' Retirement System) is $12.5 billion in the red, and that shortfall is expected to climb to nearly $18 billion by 2018.
* In California, the Orange County Employees Retirement System is estimated to have a $10 billion dollar unfunded pension liability (that's just one county). State and local government bodies in CA have $325 billion in combined unfunded pension liabilities. ($22,000 for every single working adult in CA).
* In Illinois, they are facing an unfunded pension liability of more than $77 billion dollars. The state is flat broke and on the verge of default, so it is inevitable that a lot of those pension obligations will never be paid.
* States financed only 4% of the $627.4 billion they were projected to owe for future retiree benefits in 2010, according to Bloomberg Rankings data. The previous year (2009), states only funded 5% as governors coped with lower general-fund revenue and rising demand for services.
-- For example, in New Jersey, the state owes at the moment what amounts to almost $7,600 per resident for public workers’ post-employment benefits other than pension payments
* Cities including Central Falls, Rhode Island, and Vallejo, California, have used bankruptcy to cut promised benefits to current and retired workers. States can’t seek court protection under the code’s Chapter 9. Presently, Harrisburg, Pa is also very close to declaring bankruptcy.
* In Michigan in order to attempt to reduce its retiree health-care costs, it passed a law in 2011 where employees hired after Jan. 1 of 2012 won’t be promised health benefits when they retire. Instead, the government and workers will contribute to a fund that retirees can use to pay for insurance.
States have been slow in tackling the retiree health-care cost issue to avoid pressure for benefit cuts or funding increases, which may divert money from other priorities. Currently at least 20 governors and legislatures have failed to prepare ways to meet their projected expenses, according to the Council of State Governments.
Over the next 20 years approximately 10,000 Baby Boomers will be retiring every single day. States, counties and municipalities have tried to enact legislation that increases retirement age or pushes healthcare recipients onto Medicare (and their balance sheets) but all these actions are nothing more than can-kicking strategies.
So what is a person to do? The answers are not simple nor easy. The best course of action (if possible) is to save, save, save. Do not simply assume your retirement pension will be there or the checks will simply keep coming. The economy is extremely volatile, no matter what the lying liars in Washington DC and the Fed say.
If you think it will never happen, well.. it already has...
From New York Times, December 23, 2010:
"Pritcherd, Ala, a struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry. Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full...
"Nettie Banks, 68, a retired Prichard police and fire dispatcher, filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.
"Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,” said David Anders, 58, a retired district fire chief. “He was a proud enough man that he wouldn’t accept help...
"“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt."
Remember the basic maxim of the Aesop fable "The Ants & the Grasshopper"-- The Ants prepare for the coming winter... The Grasshopper simply plays his fiddle... and eats away the day.
Posted by Susquehanna at Thursday, March 15, 2012