We can’t control what others do and we can’t stop misfortune from striking. But we can control our own actions. Those who are financially prudent will most likely enjoy success, even if events don’t always go their way.
Are you sick of hearing about Puerto Rico, New Jersey, Detroit, Rhode Island, California, Illinois or any other government pension system? You should be annoyed and angry if you live in an affected state or municipality.
Public employee pensions are like Social Security, a promise everyone wants kept, but nobody wants fixed and woe be the politician who tries. In other words, don’t tell me the truth, just keep your promise and I don’t care how it affects anyone else.
Well, sooner or later these liabilities do affect everyone because to pay the promised benefits will require higher taxes and/or cutting of services. It’s too bad that Bernie Sanders and the far left don’t understand this. To the contrary, rather than being concerned about funding what has been promised, they focus on promising more.
From Foxnews.com
Puerto Rico is confronting what economists and financial analysts say is a ticking fiscal time bomb: A public pension system with a $37.3 billion unfunded liability that must be addressed soon, at a time when the U.S. island territory’s government has little money to spare, or thousands of retirees could start to see benefit cuts. (The Associated Press)
Doing the right thing is always simple
Some experts are calling for cutting benefits to help Puerto Rico confront what economists and financial analysts say is a ticking fiscal time bomb: A public pension system with a $37.3 billion unfunded liability that must be addressed soon, at a time when the U.S. island territory’s government has little money to spare.The unfunded liability, which is spread across three public pension systems, is almost four times the annual government budget for the island of nearly 4 million people. Only a few much larger U.S. states, such as California and Illinois, face bigger unfunded liabilities.
Puerto Rico’s problem stems from decades of neglect as politicians facing budget deficits were unwilling to set aside money for the growing ranks of retired police, firefighters, teachers and office workers. Now many analysts and even some government officials concede it is the most critical issue facing the administration of newly elected Gov. Alejandro Garcia Padilla.
“This is the most important financial issue right now,” said Gustavo Velez, a prominent Puerto Rican economist. “They have to find a solution. They have to create a plan in the next three months.”
Velez and others suggest that Puerto Rico should immediately reduce benefits, raise the retirement age and demand increased contributions from current employees, ideas that don’t sit well with people like Marti.
“Imagine, I’m going to be left without a big chunk of money that I contributed,” she said.
Garcia, who defeated the incumbent with support of the public employee unions, has formed a committee to come up with suggestions. He has not yet said how he will address the situation. Simply taking the money from the island’s general fund is out of the question: Puerto Rico has a projected deficit this year of $1.2 billion.
“It’s a very complex situation,” Garcia said at recent news conference. “We will respect the pensions of those who contributed and built this country.”
The island only recently emerged from a six-year recession and the unemployment rate is 14 percent, higher than any state. Manufacturing, the largest segment of the economy, has been in decline for years. Former Gov. Luis Fortuno laid off more than 20,000 government workers. His predecessor, Anibal Acevedo Vila, was forced to partially shut down the government for two weeks in May 2006 in a standoff over budget talks with the legislature.
In the meantime, the pension system’s deficit kept growing.
“It’s not that we’re bad off. We’re broke,” said Miguel Morales, a consultant to a permanent committee charged with regulating the pension system. “The concern is that there will come a day when the government cannot respond and everyone will be left out on the street.”
Nearly all of the problem centers on two pension systems — one for teachers and one for other government workers — that stopped accepting new beneficiaries in January 2000. They serve more than 273,000 active and retired government workers.
Those initially allowed workers to retire at age 55 with 25 years of service or at age 58 with 10 years of service. In 1990, legislators made significant changes, reducing benefits and increasing the retirement age from 55 to 65 years for newly hired workers.
As liabilities mounted, legislators scrapped that system 13 years ago, creating a new system that is more like a 401(k)-type plan in which workers must make their own contributions.
The newer defined-contribution plan is considered financially stable. But the older plan will have used up its assets “within several years,” Karen Krop, a senior director of public finance at Fitch Ratings.
If the system does collapse, the island’s general fund is supposed to honor those collections. “But the general fund doesn’t have that money,” Velez said.
Nearly three years ago, former Gov. Fortuno established a committee charged with solving the pension fund’s problems, noting that the overall system was paying $679 million more a year than what it received in contributions.
“Absent any corrective measures, the systems could be left without funds in or before 10 years,” he stated in a March 2010 executive order.
And it’s not just Puerto Rico, read this from Businessinsurance.com
Most state pension plans show funding shortfalls
Most state pension plans are significantly underfunded, according to a Pew Charitable Trusts analysis released Tuesday.
On average, state pension plans were 71.8% funded in 2013, the most recent year information for all the states is available, down from 72.3% the prior year, according to the Washington-based policy research organization.
“The gap between the pension benefits that state governments have promised workers and the funding to pay for them remains significant,” Pew said in its analysis. “Many states have enacted reforms in recent years and have benefited from strong investment returns. But investment returns are uncertain, and government sponsors in many states have continued to fall short of making recommended contributions in 2013.”
Only two states — South Dakota and Wisconsin — had fully funded pension plans in 2013. Oregon and North Carolina were next, with each state having a funded ratio of 96%.
States with the lowest ratio of pension plan assets to liabilities in 2013 include:
• Illinois, 39%
• Kentucky, 44%
• Connecticut, 48%
• Alaska, 52%
In all, state pension plans in 2013 had $3.434 trillion in liabilities and $2.466 trillion in assets for a funding shortfall of $968 million.
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