Pensions Aren't Bankrupting (Most) States

alright, so I have to ask, where or what is the risk then? IS there a pension bomb or not?

Not for the majority of pension funds, no. But some are in trouble. And there will be blowups.

Eventually, states will no longer offer defined benefit plans. They will only offer defined contribution plans, i.e. like 401ks.
 
The funding gaps at some state pension plans widened in fiscal 2010, though strong investment returns prevented the situation from deteriorating even more, according to a new study by the Pew Center on the States.

On average, state pension plans had 75% of the assets needed to cover the long-term benefits owed to government workers, based on fiscal-2010 data from 16 states obtained by Pew. That was down from 77% in those states in fiscal 2009.

The wider gaps were driven by states continuing to book big losses from the 2008 financial crisis, Pew said. Typically, states realize investment losses or gains over several years.

The fiscal-2010 picture follows a greater deterioration immediately after the financial crisis. The average state pension fund was 78% funded in fiscal 2009, based on data for all 50 states, compared with 84%-funded in fiscal 2008, according to the Pew study set to be released Tuesday.

New York was 101% funded, the only state with a pension surplus in fiscal 2009, while Illinois, at 51%, was the least funded, according to Pew. New York was 94% funded as of April 2010, a spokeswoman for the state comptroller said. Illinois passed "major pension reform" last year that will save taxpayers money, a spokeswoman for the governor said.

Pension-funding gaps have galvanized many states to pursue changes to their retirement systems. In 2010, at least 19 states passed legislation to reduce pension benefits, and lawmakers have proposed additional changes this year, Pew said.

Meanwhile, asset values at state and local pension funds increased 35% from March 31, 2009, when the stock market was near its lowest point amid the crisis, through the end of 2010, according to the National Association of State Retirement Administrators.

Rebounding investments aren't all recognized immediately, which could improve the picture in the next few years.

However, some states have neglected to make the full, annual contributions to the plans recommended by their actuaries. Some skip their full contributions "in good times and bad," said Susan Urahn, managing director of the Pew Center on the States, during a call about the report.

States contributed 64% of the $115 billion recommended by their actuaries in fiscal 2009, Pew says, about three percentage points less than they contributed in fiscal 2008. Some states continued to pay less than the recommended amount in fiscal 2010. Kentucky, for instance, paid 58% of the contribution recommended by its actuary in fiscal 2009 and 2010, according to Pew. In a statement, Kentucky Governor Steve Beshear said that he shares "the concerns of many regarding management and transparency of the retirement system" and noted that the state retirement systems board of directors has recently "made some personnel changes." ...

State Pension Plans Lost Ground in 2010 - WSJ.com
 
Pensions are bankrupting California, however. Many local municipalities will eventually go under in CA. The math doesn't work.

Michael Lewis - one of my favourite writers - has a great piece out on California in the most recent Vanity Fair. This probably sums up the situation best.

I notice on his shelf a copy of Fortune magazine, with Meredith Whitney on the cover. And as he talked about the bankrupting of Vallejo, I realized that I had heard this story before, or a private-sector version of it. The people who had power in the society, and were charged with saving it from itself, had instead bled the society to death. The problem with police officers and firefighters isn’t a public-sector problem; it isn’t a problem with government; it’s a problem with the entire society. It’s what happened on Wall Street in the run-up to the subprime crisis. It’s a problem of people taking what they can, just because they can, without regard to the larger social consequences. It’s not just a coincidence that the debts of cities and states spun out of control at the same time as the debts of individual Americans. Alone in a dark room with a pile of money, Americans knew exactly what they wanted to do, from the top of the society to the bottom. They’d been conditioned to grab as much as they could, without thinking about the long-term consequences. Afterward, the people on Wall Street would privately bemoan the low morals of the American people who walked away from their subprime loans, and the American people would express outrage at the Wall Street people who paid themselves a fortune to design the bad loans.

California and Bust | Business | Vanity Fair
 

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