money.cnn.com . . . - For years, states all across the country have been starving their retirement plans. Here's a look at how the crisis is playing out in New Jersey, where the bill is coming due, and the state doesn't have the money to pay it.
(Fortune Magazine) -- Even as the nation's economy is showing some tentative signs of bottoming out, another calamity looms: the public pension bomb.

For years, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees; now the stock market plunge has wiped out billions of dollars from already underfunded plans. California, New York and Illinois are among the states scrambling to plug multibillion-dollar holes in their pension systems. The growing obligations raise the specter of higher taxes, diminished services, or even another round of costly federal bailouts.

"States have long needed to reduce their unfunded liabilities, and widespread investment losses have made it even more necessary to put money in," says Lance Weiss, author of a 2006 Deloitte study of state pensions. "But the market crash also means there's less money available to use for contributions. Everything is coming together to create a crisis."

To better understand this ticking time bomb it helps to focus on a single state, and New Jersey makes a compelling case study. For one thing, its situation is dire. In June 2008 the state estimated that the plan - one of the nation's largest, covering teachers, state employees, firefighters, and police - had $34 billion less than it needed to meet its obligations. Since then the market value of the plan has dropped from $82 billion to $56 billion (a new estimate of underfunding is due in July).

Also, New Jersey is in some ways ahead of the pack in trying to deal with the crisis - Gov. Jon Corzine, a Democrat, made addressing the problem a central theme of his 2005 campaign - and the obstacles it is encountering shed light on the hard choices facing other states.

"The pension obligations could spark a huge problem for New Jersey," says Thomas Kean, a former Republican governor. "They must be paid because they are absolutely an obligation of the state, but as it is, the budget is balanced with chewing gum and sealing wax."

***

To figure out how such a wealthy state (with a median household income of $65,933, New Jersey ranks No. 1) dug itself into this hole, set the clock back almost 20 years.

In 1990 the country was hit by a recession, and the new Democratic governor, James Florio, responded with a wildly unpopular $2.8 billion income and sales tax increase to balance the budget. Two years later, facing another budget shortfall, he turned to the state pension system for help. With almost unanimous support in the legislature, he pushed through the Pension Revaluation Act of 1992.

We'll spare you the minutiae of pension accounting and just say that the law permitted the state to recognize investment gains in the fund more quickly than under previous rules. It also lifted the projected rate of return on the fund's investments to 8.75% from 7% (since lowered to 8.25%). These "adjustments" had a big impact: According to an official Benefits Review Task Force report published in 2005, they allowed the state to cut its pension contributions by more than $1.5 billion in 1992 and 1993.

Republican Christine Todd Whitman, running on a tax-cutting platform, defeated Florio in the 1993 governor's race. To help pay for her promised tax cuts, Whitman, like her predecessor, turned to the pension fund. In 1994, at her urging, the legislature adopted another pension "reform" act that allowed her to reduce state and local contributions to the plan by nearly $1.5 billion in 1994 and 1995, according to the task force report. Florio's and Whitman's accounting changes were "the one-two punch from which the retirement system has never recovered," says Douglas Forrester, who was the assistant state treasurer under Kean.

***

Seeking to make up lost ground without putting up more money, the state's leaders looked to the magic of the stock market. In 1997 New Jersey sold $2.75 billion of bonds paying 7.6% interest, putting the proceeds into the pension fund to be invested for higher returns.

At that time Whitman said the ironically named Pension Security Plan would save taxpayers about $45 billion. It hasn't worked out that way. The fund has earned less than 6% annually since the bonds were issued.

"This is classically referred to as arbitrage," says U.S. Rep. Leonard Lance, a Republican who served in the New Jersey legislature from 1991 through 2008. "It's a questionable strategy in the private sector, and it's certainly not acceptable as a matter of public policy."

That wasn't the state's last venture into high finance. The system, along with almost every other investor, suffered sharp losses after the dotcom bust of 2001. Democrat James McGreevey, who became governor in 2002, hoped that professional money managers would improve the plan's returns. At the time New Jersey was the only state other than Texas to run its pension fund without outside help.

McGreevey appointed Orin Kramer, a money manager who had been finance chair of his unsuccessful 1997 gubernatorial campaign, as head of the State Investment Council, which sets policy for the pension plan. Kramer pushed the council to turn over some of the fund's assets to Wall Street professionals and to diversify into alternative investments such as hedge funds and private equity. But it took time for Kramer to devise a strategy and put it into action, so money didn't flow to alternative investments until 2006, on the eve of the bear market that would crush nearly all asset categories.

"Our asset-allocation model was based on the idea that there was no correlation between our alternatives and bonds and equities," says James Marketti, retired president of Communications Workers of America Local 1032, who has been a member of the state's investment council since September 2008. "It turns out they were perfectly correlated."

For all the miscues, New Jersey's pension woes can't be blamed on particularly poor investment results. An examination of state reports shows that the fund's returns have more or less tracked the broad stock market's. The real problem has been the underfunding.

Meanwhile, the obligations keep mounting: Even while they were neglecting pension contributions, New Jersey politicians were sweetening the pot. In 2001 benefits for the state's two largest groups of workers, government employees and teachers, were increased by 9%, creating an additional $4.2 billion in liabilities. In 1999 the state approved a "20 and out" measure that allowed firefighters and local police to collect pensions equal to 50% of their pay after 20 years of service - a perk previously available only to the state police. Benefits added since 1999 have increased liabilities by more than $6.8 billion, according to official estimates.

Today New Jersey seems locked in a downward spiral. "New Jersey and many other systems have negative cash flows, meaning that contributions are less than the benefits we pay out," says William Clark, director of the New Jersey Division of Investment, which manages the pension fund. "You can't make your money back when it's flowing out of the system."

Gov. Corzine's efforts to prop up the plan have had mixed results. After taking office he boosted contributions, injecting about $1 billion in 2007 and a similar amount in 2008. He planned to add another $1 billion in 2009, but in response to budget pressures now wants to spread that money over two years. And the legislature just passed a "pension holiday" bill that allows municipalities to skip their pension contributions for 2009.

Corzine has also imposed reduced benefits on state workers. Since 2007 he has raised the retirement age to 62, increased the salary requirement for pension eligibility, increased employee contributions, and capped pension income. But unions are fighting his request that members take unpaid furloughs and give up some or all of the wage hikes they are due.

"We believe reopening contracts should be a last resort as we seek to find other ways to free up money," says Anthony Miskowski, secretary of CWA Local 1033. "If we budge on the contracts, the unions are dead." But after a pause, he acknowledges that something has to give: "We'll be forced someday to be more flexible."

And those are baby steps compared with the sweeping measures recommended by consultants like Deloitte for all states facing pension crises. They include reducing benefits for current and future employees, pegging cost-of-living increases to actual inflation, cutting early-retirement programs, and forcing the states to stick with adequate funding plans. That's more of a wish list than a practical plan of action. "These are all politically sensitive solutions," says Deloitte's Weiss. "The unions are screaming, but states have to stop the bleeding."

If New Jersey reaches the point where one or more of the funds in its system runs out of money, the state will have to pay retirees out of annual revenue, adding another burden to the budget. That's how the state covers retiree health-care costs, expected to hit $1.1 billion this year. (An attempt to pre-fund those expenses began in the 1980s but was sacrificed to budget pressures in 1994.)

It would then have to slash services or boost taxes to balance the budget, a pair of ugly options. The Tax Foundation says New Jersey charges the highest state and local taxes in the country, the highest residential and commercial property taxes, and some of the highest sin taxes in the nation on cigarettes and alcohol.

If union concessions, cost cutting, and higher taxes are not enough, then what? Inevitably, New Jersey and other states would turn to Uncle Sam for help. The pressure on Congress would be great. "How will they say no to state workers when they've said yes to bankers?" asks Marketti.

Even so, Congress might balk at opening the door to a series of multibillion-dollar state bailouts. In that case, we might well see a wave of municipal or even state bankruptcies as pension obligations overwhelm local budgets. To Leonard Lance, the pension blowup is one more consequence of the financial recklessness that defined an era. "In so many areas there has been inappropriate spending," he says. "Now we all have to pay."

- The US is going down.....

EUMoron wrote:


- The US is going down.....

Not nearly as fast as you Eurotards.













Imbecile.

This is news to you but not news to me or anyone else that I know.

We have been watching this for years and wondering how government plans on filling this hole. Their only recourse is default and let the federal government take the plans over or quadrupple taxes.

The first results in street riots when the public loafer get 25% of what they thought they were going to get.

Here we have california public employee loafer.

He makes around $100k per year.

In california he is on the 3 for 30 plan, you work 30 years, they take your highest pay times 3% then times 30 which equals $90k and is what he will receive for the rest of his life in yearly pension payments plus COLA plus a local inflation adjuster.

The taxpayers pay you to loaf even after you have retired. and you could double dip with a new state job somewhere and still collect your first pension.


It is unsustainable and they know it

www.fuckfrance.com . . .


Do you think we are all a bunch of morons around here?

What we also know is that Western Europe is in far worse shape than we are, for now.

US is going down, dumbfuck? No, sate workers are going down and fuck them. LOL. If any5thing it confirms how fucked up Yur-pee-on model of Govmint everything is. Why are you so dumb, cunt? Was your Muzzi father drunk when he fucked your goat of a mother?

Lemme see here.....

The US retirement age is 66 and change (creeping slowly up to 67 as per the SS reform passed in the 1980's). The Yurp average is somewhere around 60 for the most part.

Yurp pensions are generally higher and this is particularly so for public sector employees who make up a vastly higher percentage of the total than in America.

America has a total fertility rate of about 2.1 and its population has been steadily growing at about 1% per year. Its average age is set to rise from about 36 now to about 37 in 20 years.

Yurpland's total fertility rate is massively lower hovering between 1.2 or so for countries like Italy and Spain to about 1.3 for countries like Greece and Germany, etc. In 20 years Yurpland's average age is set to rise from about 38-39 to about 52.

America's underlying economic growth rate has been higher than Yurpland's....considerably higher in fact....for the last generation.

And you think the American pension system is in big trouble? LOLOLOLOL! How do you suppose the Yurp pension promises look right about now?

The median age in Europe as we write in 2009 is about 38 years of age; in the US the median age is 32. According to the Brookings Institute, by 2050 the median age in Europe will rise to 52, while the median age in the US will be 35.

Put another way, sometime in the next forty years Europe will have only 2 workers supporting each retiree, rather than the current 4.

(Source: "Europe's Aging Population Faces Social Problems Similar to Japan's" (HTML). Goldsea Asian American Daily. goldsea.com . . .)

And you think the American pension system is in big trouble? LOLOLOLOL! How do you suppose the Yurp pension promises look right about now?

Here Europeans are a majority, and continue to be so, while todays minorities will be future majority there (as soon as 2046 according to some estimates).

Yea, American pension system is in big trouble, unless you think that Wetbacks and Blacks are going to pay your pensions?? LOLOLOLOL!

I don't live in New Jersey.

Q.: You know why most of the trees in Pennsylvania lean to the east?


A: New Jersey sucks.

Here Europeans are a majority, and continue to be so, while todays minorities will be future majority there (as soon as 2046 according to some estimates).

Yea, American pension system is in big trouble, unless you think that Wetbacks and Blacks are going to pay your pensions?? LOLOLOLOL!

Degenerate depressed drunk Frozen Ass, your Yur-pee-on majority is becoming the majority of old farts who want their pension. Alas, there is nobody to work to feed that old good for nothing Euroshit so they will just starve. We are a very young nation comparing to Yurp. LOLOLOLOL! You are fucked!

Maybe because every time we try and change the system we've got leftist retards like you crying in a whinefest.

Agree about Jersey, common joke in Maryland is when you smell something unpleasant (like a frenchman) you joke about being south of Jersey.

First road test will come tomorrow afternoon or thereabouts since today Kalifornia smurfs will vote down every issue on the ballot for more phoney tax and spend bullshit.

Tomorrow afternoon Kali's credit will downgraded to less than toxic waste.

Tomorrow afternoon Arrrnnnold is go to the Out House and beg Ooobongo for probably a 50 billion dollar immediate bailout. Probably get it but Kaliforia will no longer be an independent state when it's done, for whatever it's worth.

All this has happened, and is being done for Pub secs, teachers union in particular - and this is just today - this does not even address the Kal pensions which are a separate monstrosity.

What the UAW did to Detriot, the pub secs are doing to the states and frickin' results are going to be the same.

However, we could just 'bring it on' and let the fucking idiot Kalifornians go bankrupt - now!

A part of your data are wrong now Jerry. It was 2 years ago and before the Credit Crunch.

EU-Moron,

Look up why they are importing 50 million Africans into the EU..

Get a fucking life, pole smoker.

Dupe - Mods Please Delete

Not nearly as fast as you Eurotards.

Sigh. Jerry I find myself in the shit eating position to K you, but agree with EU-Asswipe.

We are done too. They are going first, but we are done not 1 year after them. European Socialism, and it's American bitch backers, are going to make sure of it.

There are no more free men in America, no more real men. Just those that work and those that collect welfare for a living.

None of our black, hispanic, or hillbilly populations care about freedom, or right and wrong. They just want the handout. So very European of them.

There are no more men in the United States Jerry. Admit it.

Good lord, VikingTard! Could you be any more BORING? Come up with some better stuff and then we'll talk.

Just capitalism.

EUFinland wrote:

Here Europeans are a majority, and continue to be so, while todays minorities will be future majority there (as soon as 2046 according to some estimates).

Yea, American pension system is in big trouble, unless you think that Wetbacks and Blacks are going to pay your pensions?? LOLOLOLOL!

America's demographics are decidedly healthier than Yurplands'. "Hispanics" (not an ethnic group) have a rate of intermarriage of 50%...which is far higher than previous immigrant groups. Meanwhile Yurpland is aging rapidly and what kids there are are heavily Muzzie. Think they're going to prop up the Yurp welfare states? LOLOLOLOL!!!!

Michael(Michel). You know as well as me that derivative products have been invented by americans. So understand that your country has to be in ruin before the others. And if possible only you.It is the justice.

Sincerely SimpleFrench.

MichaelE wrote:



America's demographics are decidedly healthier than Yurplands'. "Hispanics" (not an ethnic group) have a rate of intermarriage of 50%...which is far higher than previous immigrant groups. Meanwhile Yurpland is aging rapidly and what kids there are are heavily Muzzie. Think they're going to prop up the Yurp welfare states? LOLOLOLOL!!!!

simplefrench wrote:

Michael(Michel). You know as well as me that derivatives products have been invented by americans. So understand that you country has to be in ruin before the others. And if possible only you. IT is the justice.

sincerely SimpleFrench.

LOL! Derivatives have been around for a long LONG time and no, they were not "invented" by Americans. Understand that Yurpland is by every measure doing a helluva lot worse than America (or Britain) and has been for a generation. Understand further that it will do even worse in the future. It is justice.

Sincerely MichaelE.

I affirm that derivative products have been invented by americans.The main part at least.

And do you know the difference of gdp between France and Uk currently ?

Deal with reality please lol

simplefrench wrote:

I affirm that derivative products have been invented by americans.The main part at least.

And do you know the difference of gdp between France and Uk currently ?

Deal with reality please lol

Then you don't know what you're talking about. Derivatives are not new. Britain's economy was a lot worse than Frogland's in the 70's. Its ahead now.

Funny. It is not because a product is there since a long time that it has not been invented. And this financial tool has been mainly created by americans.

And Non,Uk is not ahead of France currently.

simplefrench wrote:

Funny. It is not because a product is there since a long time that it has not been invented. And this financial tool has been mainly created by americans.

Huh?

And Non,Uk is not ahead of France currently.

Wrong. IMF data for 2008
UK GDP at ppp 2,230,549 billion $
Frogland GDP at ppp 2,130,383 billion $