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"A Goal Without a Plan Is Just a Wish"
-Antoine de Saint-Exupery

   

Pension Funding Gets Worse

Wilshire Consulting calculates the funding ratio for State sponsored retirement plans every year. For the year ending June 30, 2016 (the most recent) the average funding ratio, or the amount of pensions that have the money to pay, dropped to 69%.  What this means is that either taxes will need to be raised dramatically to make this up or future pension benefits dramatically curtailed.

If this was a corporate plan the Department of Labor would have demanded curative action years ago or would have been fining the sponsors before they shut them down. Unfortunately, the pension plans of the states and municipalities are exempt from the federal pension laws and for decades there has been no accountability for the underfunding, irrational assumptions, and poor results.

This is not an investment problem, this is a spending problem.

The math tells us that the promised spending levels are too high for the amount of money going into these plans and have been for decades. These plans were never adequately funded or when they were, they promised benefits would be raised without additional taxes. This is a political problem. Taxpayers, employees, and legislators need to have an honest talk about this problem and what can be done. It is not ok to simply pass this burden on to the next generation.

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