10/9/2017 Underfunded Pensions Could Spark Wave Of ‘Precedent Setting’ Reforms

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Underfunded Pensions Could Spark

Wave Of ‘Precedent Setting’ Reforms
October 8, 2017 2:12 am by Rupert Hargreaves Views: 1330

A
merica’s growing underfunded pensions crisis (not just limited to the US, all developed nations are facing
the same issues) has been well documented but the impact rising pension costs are having on other
government departments is rarely considered.

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Public Pension Finances In Dire Conditions, Will Get Worse ...

Pension Burdens Rise As Liabilities Double In Just A Few Years

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10/9/2017 Underfunded Pensions Could Spark Wave Of ‘Precedent Setting’ Reforms

Pension Funds Underperform While Placing Blame On Hedge Funds

A new report from Joe Nation of Stanford's Institute for Economic Policy Research entitled "Pension Math: Public
Pension Spending and Service Crowd Out in California, 2003-2030," aims to rectify this.

The report looks at how rising pension obligations have forced lawmakers to slash spending on other public
services, namely education, and social services, robbing the younger generation to meet the unrealistic pension
demands of former state workers in the state of California.

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10/9/2017 Underfunded Pensions Could Spark Wave Of ‘Precedent Setting’ Reforms

underfunded pensions Are Crushing Education Budgets

The underfunded pensions problem is most acute in California. As a percentage of the state's operating budget,
pension spending increased from 2.1% in 2002 -- 2003 to 4.9% by 2009. Costs have risen further to an estimated
7.1% for 2017 -- 2018.

The rising demand for funding has come despite higher tax revenues and higher contributions from both
employees and employers. According Stanford's report employer pension obligations expanded by an average of
400% between 2002 and 2018. As a result, pension contributions now consume on average 11.4% of all operating
expenditures, more than three times their 3.9% share in 2002-03. By 2030, contributions are expected to rise an
additional 76% on average. Despite higher contributions, funding ratios have only deteriorated:

"On a market basis, the average funded ratio fell from 58.5% in 2008 to 43.0% in 2015. By 2029 it improves to 48.2% in the
baseline projection, but falls to 39.0% in the alternative projection. The unfunded liability per jurisdiction household on an
actuarial basis also rose from an average $1,682 in 2008 to $5,071 in 2015; the unfunded liability per household on a market
basis is $21,491, up from $9,127 in 2008."

Many factors have been blamed for underfunded pensions funding crisis, including signi cant retroactive bene t
increases, unrealistic assumptions about investment earnings, operational practices that mask or delay recognition
of true system costs and poor governance. Whatever the root cause may be, it's clear policymakers need to take
drastic action to avert a state-wide funding crisis.

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10/9/2017 Underfunded Pensions Could Spark Wave Of ‘Precedent Setting’ Reforms

Pensions rst, education later 

Unfortunately for the younger generation, it looks as if the underfunded pensions black hole is already having an
impact on their futures. According to the Stanford report, since 2002, an estimated $6 billion has already been
shifted away from social services and higher education budgets towards pension funding:

"As discussed above, the pension expenditure share of the state’s operating budget increased from 2.1% in 2002-03 to 4.9% in
2008-09; it is estimated at 7.1% in 2017-18. This increasing share, despite an expanding budget, has shifted $6.0 billion in
2017-18 from other state expenditures to pensions.

Changes in state expenditures by agency and department suggest that this reduction has come primarily from social services
and higher education. For example, the expenditure share for the Department of Social Services (DSS) fell from 10.7% in 2002-
03 to 6.0% in 2014-15 before climbing to 7.0% in 2017-18. The higher education share of operating expenditures fell from
11.3% in 2002-03 to 9.8% in 2014-15, although it increased to 10.5% in 2017-18."

The Department of Justice, the Department of Parks and Recreation and Department of Water Resources have also
had to foot the bill with each department having to deal with a funding cut of around 50% in terms of the
percentage of the overall budget.....

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Tags: pension, pension crisis, Pension Plans

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