The Origins and Severity of the Public Pension Crisis

[Hannah Bell]

For Immediate Release: February 14, 2011
Contact: Alan Barber [phone]

(Mods, please note: this is a press release, released for free use to media.)

Washington, D.C.- With many state governments facing budget shortfalls this year along with dwindling federal assistance, some policy-makers have begun to call for drastic reductions of public sector pensions as a way to ease state budget woes. A new report from the Center for Economic and Policy Research (CEPR) puts this issue into better perspective, clearing up many common misconceptions about these funds.

The report, “The Origins and Severity of the Public Pension Crisis,” shows that the main reason public pension shortfalls exist at all is the downturn in the stock market following the housing crash in 2007-2009, not inadequate contributions. The paper demonstrates that if pension funds had just earned returns equal to the interest rate on 30-year Treasury bonds since 2007, their assets would be more than $850 billion greater than they are today.

“Much of the recent discussion of public pensions is misleading,” said Dean Baker, a co-director at CEPR and author of the report. “The shortfalls represent a small percentage of each state’s economy and, barring another sudden reversal of the stock market, are manageable.”

The paper looks at three main issues: the origins of the shortfall; whether public pension funds need to be as risk averse in assessing rates of return as individual investors; and the actual scope and size of the pension shortfalls relative to future state income.

Upon closer inspection of these issues, it is clear that public pension shortfalls have been misrepresented in public debates and will prove a reliable source of retirement income for future retirees without bankrupting state governments.

http://www.cepr.net/index.php/press-releases/press-releases/pension-shortfalls-misrepresented-in-budget-debate

[dkf]

1. Funny how we now believe the stock market can be a reliable source of retirement funds.

Yet privatization is such a no-no.

I say we would have been significantly better off if our surplus had been invested in stocks, bonds and other investments. But that is me.

[Hannah Bell]

2. wtf are you talking about? public pensions *are* invested in stocks & bonds.

[dkf]

7. Exactly. Yet we refuse to let social security do so.

[Hannah Bell]

8. for reasons that are increasingly obvious.

[dkf]

9. So how can you say pensions based on stock/bond returns are ok but social security won't get paid

If invested in stocks? Aren't you arguing contradictory points?

[Hannah Bell]

10. you apparently are unable to read or process language. such a bore.

[dkf]

11. You seem to not be the one who can process your own post.

"Upon closer inspection of these issues, it is clear that public pension shortfalls have been misrepresented in public debates and will prove a reliable source of retirement income for future retirees without bankrupting state governments."

[Hannah Bell]

12. You apparently haven't been paying attention to political/economic developments, which are the

the author had to do such a study in the first place.

Shortfalls exist currently, & the crash is the number one reason. The author is saying that current shortfalls can be financed via the public purse. But that's not what the general political sentiment is saying.

Furthermore, if we're going to bail out pensions short-term, why subject them to market vagaries -- & corruption -- in the first place?

We live & die in the short-term, not the long-term.

[dkf]

13. Pah if you don't think the social security surplus would have been better invested in stocks and

Corporate bonds or some other investment then I can't make you see the light. It's a good thing you have a pension with someone investing for you. I hate to see where you would have been if you had to figure out how to retire on your own.

[Hannah Bell]

14. making stuff up, as usual.

[grahamhgreen]

3. The reason is we used to tax the ultra rich at 94%, now they pay nothing.

[Hannah Bell]

5. pretty much.

[Starry Messenger]

4. k&r

[Dawson Leery]

6. K/R

[WCGreen]

15. Another reason is that state lawmakers often times would delay

matching contributions that they were legally required to do in order to "lend" the state, in bridge loans, money to cover operating expenses.

Now that it is time to pay that "loan", the states, mostly run by GOP governors, are reneging on their legal obligations.

that is the true crux of the problem, the states not making their contributions to the funds they set up in the first place.

This is very important, the GOP governors are blaming greedy workers for the short falls in the general operating funds when it really is all at the hands of the governors who "borrowed" money from the workers to cover operating expenses.

They should be hauled into court but of course the press believes the MEME about greedy and lazy state employee and letting this huge story go unreported.

[Starry Messenger]

16. kick.