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Tuesday, July 12, 2011

"Sticker shock" from new pension rules

Public pension funds in Pennsylvania, New Jersey and other states, already pressing taxpayers for big increases in their yearly contributions, face "sticker shock" as new accounting guidelines threaten to "swamp the balance sheet" by forcing governments to confront the real cost of retirement plans for legislators, judges, teachers, police and corrections officers, writes Girard Miller, senior strategist at PFM Group, the Philadelphia-based national pension adviser.

The Government Accounting Standards Board (GASB) guidelines (draft here; summary here) will, among other things:

- List pension funding deficits (estimated to total $2 trillion for state and local government plans) on their balance sheets, increasing pressure to either put more money aside for pensions, or cut future benefits.

- Force underfunded plans (which is most plans) to cut their unrealistic 7%-8% yearly profit target down to a rate based more closely on bond yields.

- Stop pension plans from stretching the amortization (funding period) for paying future liabilities, from the current 30-year limits, to shorter 12- or 15-year periods based more closely on "the average remaining service lives" of government worker sbefore they qualify for pensions.

That will increase the funds' (and the governments') apparent deficit, forcing them to either set aside more money for pensions, or cut future pension benefits. It will also make pension results more volatile, forcing taxpayers to set more aside to cover pension liabilities when markets go down, even though those years are usually a tough time to raise taxes.

Miller estimates even a small change in target investment reeturns could result in a "40% increase in annual catch-up contributions," or a "60 to 100% increase in pension costs" in recession years. He expects many funds will choose not to conform to standard accounting procedures if GASB rules are adopted.

Pennsylvania State Employees' Retirement System is reviewing the proposed rules, says spokeswoman Pamela Hile. So is the Public School Employees' Retirement System, says spokeswoman Evelyn Tatkovski.
Posted by Joseph N. DiStefano @ 1:08 PM  Permalink | 5 comments
Comments   
  • 0 like this / 0 don't   •   Posted 2:00 PM, 07/12/2011
    If the State and local governments put in their share for the last 30 years instead of using that money for pet projects, the pension funds would be fine. Imagine if all the workers who made their contributions decided that money was tight, or they needed a new car, and stopped contributing while the sate and local governments dutifully put in their share. Then 30 years down the road, the workers tried to force the governments to make up the shortfall. Thats whats happening now. Blamwe the workers for the governments mis management.
    — hititwheretheyaint
  • 0 like this / 0 don't   •   Posted 9:51 PM, 07/12/2011
    I don't have a problem with pensions. I do have a problem with tax deadbeats, the salary we pay our "part time" legislative bodies, and the life time of COSTLY, CADILLAC PLAN benefits they receive,and they cars they get on the taxpayers dime
    why are we only going part of the problem. let's get it where it all starts
    — DrewP
  • 0 like this / 0 don't   •   Posted 10:03 PM, 07/12/2011
    Buy them out now and force them into 401K programs with minimal taxpayer matching funds. Eliminate pensions entirely from the taxpayer dime, starting tomorrow. Cut the state worker payroll by 20%- eliminate 1 in 5 jobs and force the remaining 4 to make up the slack.
    — kelprod2
  • 0 like this / 0 don't   •   Posted 1:13 PM, 07/13/2011
    Why isn't pension funding treated like salary? Why do we allow the government or a company to contratually agree to provide a benefit but we don't have regulations that make payments mandatory? We don't allow companies to promise a salary and then defer paying it year after year?
    — MikeP
  • 0 like this / 0 don't   •   Posted 5:17 PM, 07/13/2011
    COLORADO HAS SOLVED THE PENSION "CRISIS." There is no need for GASB, no need to monitor the funded status of DB plans. Our District Judge Hyatt in Colorado has decided that it is perfectly fine for the state to take fully-vested, contracted, earned, accrued retirement benefits. Who knew that this was possible? In a recent column John Bury referred to this activity as legalizing theft in the United States. So, now that contracts in the US are meaningless, we can save the costs of operating GASB. When a pension has a low funded ratio in the future we can just break contracts until the problem is eliminated. Visit saveperacola.com to read all about the solution to the US pension crisis that we have discovered in Colorado.
    — Algernon Moncrief


5 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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