A new Census report on state and local pension plans shows they lost $179 billion even before stock, bond and real estate markets crashed. State and local pension plans lost $178.8 billion in value in the last full year of accounting before markets crashed and the recession hit, according to the latest data from the U.S. Census Bureau.
That apparently represents a $498 billion drop in total receipts and a negative earnings swing of $510 one year, when most plans assume growth of 7-8 percent.
The bad news is in the just-released 2008 State and Local Government Employee Retirement Systems Survey of 2,550 pension plans covering 13.1 million state and 1.6 million local active members.
Data are as of June 30, 2008. According to the National Bureau of Economic Research, the recession officially began in December of 2007. Real estate began to decline, and then went into freefall when financial markets collapsed in the fall of 2008.
According to the Census report, “Total receipts amounted to $79.6 billion in fiscal year 2008, which contrasted with $577.6 billion in total receipts in 2007. While employee ($36.9 billion) and government ($82.0 billion) contributions continued to rise in 2008, earnings on investments lost $39.3 billion. Earnings on investments had seen an increase of $471.0 billion in 2007.”
Spot checks of state and local pension funds show major declines in investments in the last 18 months, but this Census analysis based on self-reporting is the first comprehensive look at such a large number of plans, and it shows the funds were headed down even before the recession.
The Census report covers pension plans only and does not include Other Post Employment Benefits, Christoper Pece, a Census spokesman said Monday.
Recent independent studies of those plans, which primarily include retiree health-care benefits, show a gap between promises and ability to pay measured in trillions of dollars.
A recent Pew Center on the States study found a minimum $1 trillion shortfall in total retirement benefits funding even accepting the most optimistic – experts say unrealistic – assumptions. A Government Accountability Office disclosed a $530 billion gap in health-care benefits alone.
Both studies stressed the true amounts cannot be determined and probably are much larger.
Details revealed by the Census report show the situation may be even worse than the earlier studies indicated.
The portfolios include $10 billion in mortgages, $468 billion in foreign investments, $90 billion in real property and $334 billion in “miscellaneous” investments. Losses in those areas could exceed stock declines and may not benefit from limited market recoveries.
Bottom line, even though in 2008 taxpayers contributed $82 billion to the plans, and public workers $37 billion, the 2008 investment loss was $39.3 billion.
That is in contrast to $577.6 billion in total receipts and an investment earnings increase of $471 billion in 2007. Government retirement plans assume and must achieve higher rates of return than private pensions, so a loss has greater impact on government plan unfunded liability.
State and local governments also skip or reduce “Annual Required Contributions” that companies must make, thereby increasing the unfunded liability.
According to the report, “7.6 million people received $175.4 billion in benefit payments” in 2008.
That is about $23,000 each on average. The plans paid out $13.8 billion in “other payments.”
Lisa Blumerman, chief of the Census Governments Division, said in a news release, “Shortfalls in state and local government pension plans may have long-term consequences for some state and local governments.”
Article courtesy of The Franklin Center
