“Imminent funding challenges'” are being acknowledged in a recent study of the biggest 100 U.S. public worker pension plans, and the assertions may cause more worry in the future if American cities such as San Bernardino, working to overcome bankruptcy, a recent terrorist attack and pension promises made for public services to help residents, cannot resolve the pressing financial concerns.
Rebecca A. Sielman, FSA, MAAA, EA explains this year’s numbers in her online write up of the research results for Milliman, Inc, which is a global consulting and actuarial firm. “On a market value basis, public pension funded status increased by more than 4% in 2014,” reads the post from Sielman. However there seem to be “[i]mminent funding challenges” from flat “equity performance in 2015 and lower return expectations going forward” Sielman believes.
Residents of California may be impacted eventually, as local governments work to manage the challenges they face. Robin Respaut of Reuters online writes that San Bernardino, a California city bankrupted and the scene of a deadly terror attack, has “won praise from bondholders” in December for its handling of the rampage which left 14 people dead and numerous wounded. But even so, while U.S. Bankruptcy Court Judge Meredith Jury praised the city of San Bernardino for its efforts in December on the shooting by a Islamic jihadist married couple, creditors were still questioning “… a plan to increase spending to bolster the police force.”
“Creditors were concerned with their treatment in San Bernardino’s proposed plan to exit Chapter 9 protection,” reports Respaut. “Bondholders questioned the city’s plan to spend $159 million over 20 years to increase police staffing, improve technology and replace aging vehicles, and another $24 million set aside as a bankruptcy reserve.”
A Luxembourg-based bank and the city’s second-largest creditor, Erste Europäische Pfandbrief- und Kommunalkreditbank (EEPK) protested. Vince Marriott, representing EEPK, said the city’s plan was “completely opaque,” according to Respaut, and the city needed “to explain in more detail what it is, what it is for, and how it is calculated.”
Underfunded: ‘$1.2-1.3 trillion’
Covering the Milliman study findings for BreitbartNews, Mike Flynn writes that it may be “[t]he true gap between what politicians have promised state and local government employees and the resources currently available to meet the promises is several hundred billion more dollars, around $1.2-1.3 trillion.”
Further, flynn states that “… this is the unfunded liability for just the 100 largest public sector plans. The total deficit for all public sector pension plans in the country is far higher. It is also important to bear in mind that this deficit is likely to explode in the coming years. The average rate of return built into the pension plans is currently 7.65 percent annual growth. Even the best managed plans will be hard pressed to earn that kind of investment return in the year ahead. Fiscally, this pension deficit jeopardizes taxpayers and almost all other state and local budget items. The amount states have allocated to their pension systems has almost doubled in the past decade, but even that higher spending hasn’t made a dent in the unfunded liability owed. The number of retired and inactive members now outnumbers active members in the public sector pensions.”
TeriI Sforza, writing for the OrangeCountyRegister, also writes recently of “[t]he gaping hole at the bottom of California’s public pension funds” even as public workers are “kicking in more to fund their retirements, helping to stabilize the burden borne by California’s cities.”
Quoted in the story is Steven Maviglio, described as a spokesman for Californians for Retirement Security. ““No one cares more about the sustainability of retirement funds than the state’s teachers, firefighters and other public workers,” said Maviglio. “They are paying more for benefits than ever, while seeing them scaled back.”