|Pensions A Financial Time Bomb Waiting To Explode!|
Unfortunately, brushing aside or trying to ignore the problems brewing in a pension funds ability to meet its obligations down the road does not make them go away. Matters have been made worse by Washington and those placed in a position to mandate change sidestepping responsibility and failing to take any real action. In the recent weeks, two stories popped up to bring this ugly reality back into focus. One covered the crisis or mess existing in Illinois and the other concerned CalPERS, the massive California Public Employees' Retirement System. CalPERS manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families. In the case of Illinois, the problems clearly stem from a dramatic growth in total pension benefits promised by politicians.
The CalPERS system, on the other hand, claims they are responsible and thought they stood on solid ground, once more than 100 percent funded, CalPERS now has scarcely two-thirds of what it would need to fully cover all of the pension promises to current and future retirees. And that is assuming it can hit its rather optimistic investment earnings target of 7% per year. This means with the future always moving ever closer CalPERS, has no choice but to change policy and take several steps if it hopes to avoid a complete meltdown." CalPERS could, of course, modify benefits in some way but the board which is dominated by public employee organizations and sympathetic politicians has rejected this idea.
Last week the $350 billion California Public Employees Retirement System (CalPERS) made a "relatively small change" in its amortization policy. CalPERS board voted to change the period for recouping future investment losses from 30 years to 20 years. While this may not sound like much, the bottom line is that it would require the California state government and thousands of local government agencies and school districts to increase their mandatory contributions to the pension trust fund. The problem is that many cities are already complaining that double-digit annual increases in CalPERS payments are driving them towards insolvency.
Wirepoint a group whose mission is to "Connect the dots between Illinois' economy, government and business" recently released an article pointing the blame directly at Illinois politicians for the state’s massive pension crisis. It debunks the narrative that underfunding has caused Illinois’ state pension crisis. Critics on both sides of the aisle often accuse taxpayers of shortchanging pensions. Wirepoints found that total pension benefits have grown exponentially at an annually compounded rate of 8.8 percent over the past 30 years. Compared to 1987, benefits have grown 1,061 percent. As a result of this unbridled growth the promise of those benefits has overwhelmed the state’s economy and taxpayers’ ability to pay for them.