GOVERNMENT PENSIONS: Sinking the Ship of State

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Like many state pension plans in this country, too many teacher pension plans are underfunded compared to their future obligations. The solutions are more taxation, more contributions by employees, switching to 401Ks, phasing out of benefits or accruing more debt until they collapse.

Teacher pensions are a time bomb and it’s the same story with other government pensions.

Take Kentucky for example. According to the latest analysis, the Kentucky Teachers’ Retirement System has only 55% of the money needed to cover benefits during the next 28 years, and overall it faces $13.9 billion in unfunded liabilities, according to USA Today. Only three states have a lower ratio –  Indiana’s pre-1996 account at 32%, Illinois at 41% and Alaska at 48%.

The system sold off $650 million in 2014 to help pay out benefits and expects to liquidate another $750 million this year, USA Today reported.

Teachers in Kentucky are so concerned that they are thinking about leaving their careers.

When lawmakers start writing the state’s next two-year budget, the Kentucky Teachers’ Retirement System will need $520 million in additional allocations in the first year and nearly $513 million more in the second year.

Eventually it will be too late to recover.

Traditional pensions simply haven’t proven sustainable in the private sector and if they aren’t in the private sector, they won’t in the government sector.

Kentucky officials are looking to overhaul benefits. They are considering taking out bond debt as if they don’t have enough debt and that is the most popular idea at the moment.

In a 2012 report, Morningstar, the stock-market research and analysis company, considered a funded ratio of less than 70% not fiscally sound.

Market analyst Morningstar considers a pension fund fiscally sound if it has a 70% funded ratio, the amount of its assets divided by liabilities. And 19 of 31 pension funds that specifically mention teachers in their title fall below that threshold.

Here’s how those pension funds with a funded ratio lower stacked up in 2013, the latest information available.

  1. Indiana State Teachers’ Retirement Fund (Pre-1996 Account), 31.8%
  2. Illinois Teachers’ Retirement System, 40.6%
  3. Alaska Teachers’ Retirement and Pension System, 48.1%
  4. Kentucky Teachers’ Retirement System, 51.9%
  5. New Hampshire Teachers Group, 54%
  6. Connecticut Teachers’ Retirement System, 55.2%
  7. Massachusetts Teachers’ Retirement System, 56.3%
  8. Louisiana Teachers Retirement System of Louisiana, 56.4%
  9. New Jersey Teachers’ Pension and Annuity Fund, 57.1%
  10. Oklahoma Teachers’ Retirement System, 57.2%
  11. West Virginia Teachers’ Retirement System, 57.9%
  12. North Dakota Teachers’ Fund for Retirement, 58.8%
  13. Rhode Island, Employees’ Retirement System – Teachers, 59%
  14. Vermont Teachers’ Retirement System, 60.5%
  15. Alabama Teachers’ Retirement System, 66.2%
  16. Ohio State Teacher Retirement System, 66.3%
  17. Montana Teachers’ Retirement System, 66.8%
  18. California State Teachers’ Retirement Fund, 66.9%
  19. Maryland Teachers’ Retirement and Pension System, 67.1%

Government pensions need reform. It’s not only teachers’ funds and it’s the future promises that no one will allay. Politicians want to be re-elected and unions want their dues.

California is a good state to consider when looking at unaffordable pensions and the New York Post has laid it all out.

Nearly 25 percent of San Jose’s budget pays for generous pensions and they guarantee retired city workers as much as 90 percent of their former salaries for life. That has left too little for core city services like policing and firefighting.

In San Jose, pension costs exploded from $62 million in 2003 to nearly $210 million in 2013. So even though the San Jose Police Department budget skyrocketed nearly 50 percent during the past decade, police staffing fell 20 percent — because so much of the money was eaten up by the pensions, the Post reported.

Marin County’s public-school teachers are members of the California State Teachers’ Retirement System, a defined-benefit pension system that’s $104 billion in debt.

The Post noted that Gov. Jerry Brown jacked up the amount school districts must pay to the CalSTRS fund each year by a whopping 132 percent. Marin will see its outlays soar to $36 million in 2020, from just $15 million in 2014. “I have no idea where we’re supposed to get the money,” one exasperated school official in Marin County says.

Pouring additional millions into pensions leaves school districts with less money to hire new teachers, repair school buildings and provide for the classroom needs of children.

Pension payments to CalSTRS from all California school districts will increase to $6.4 billion in 2021, from $2.3 billion in 2015 — a nearly threefold increase. These higher costs will drain school budgets for more than 30 years. Yet, shockingly, CalSTRS CEO Jack Ehnes wants to hike teachers’ pension benefits by another 50 percent.

Marin County is very rich and they can’t afford it.

Government pension plans have become tied up in politician’s re-elections so they over-promise benefits and push debt to pay for them, kicking the can down the road even though it immorally deprives communities of much-needed services.

Services end up being squeezed to pay for it all. The unions want to cater to dues-paying members and they are part of the insidious problem.

Franklin Roosevelt said we must not go to government unions. “It is impossible to bargain collectively with the government,” he said. Public sector unions insist on laws that serve their interests — at the expense of the common good.

In the end, they are all stealing from the low and moderate income people to pay overly generous benefits for public employees.

There is a good solution – 401K pensions – but it’s hard to take away benefits once people have become accustomed to them – they see themselves as entitled. The end point then is collapse. That may be what it takes.

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