Pensions a Burden on States? Quite!

When I read the Charlotte Observer, I do so with a suspect eye. This past Sunday the Disturber published an article by Kevin G. Hall entitled, “Pensions a burden on States? Not quite.” And had Mr. Hall read the Carolina Journal, He might have given more credence to this particular paragraph he had written:


The most recent Public Fund Survey by the National Association of State Retirement Administrators showed that, on average, state and local pensions were 78.9 percent funded, with about $688 billion in unfunded promises to pensioners. Critics suggest that the real number is at least $1 trillion or higher, using less-optimistic market assumptions.

Well, here is a non-assumption. North Carolina has cooked the books, as reported by the aforementioned Carolina Journal:

But one fiscal analyst who reviews state and local budgets across the nation says Perdue’s method of accounting for the state pension plan is nothing more than a gimmick. Eileen Norcross, the lead researcher on state and local policy issues with the Mercatus Institute at George Mason University, says Perdue’s planned contribution to the Teachers and State Employees' Retirement System is inadequate, but it’s the least of the state’s pension-funding woes.


Norcross says North Carolina and other states have understated dramatically the size of their pension liabilities, and have failed to provide enough money to prevent large either tax increases or major cuts in retirement benefits down the road.


Norcross projects the market value of North Carolina’s pension liability at more than $92 billion, and it’s only 60 percent funded, with an unfunded liability of $36 billion. That’s 15 times higher than the unfunded liability of $2.4 billion estimated in the state’s financial reports.

She bases her projections on the amount of money the pension fund will have to pay in benefits rather than the estimated growth in its assets. For years, she says, states have been calculating the value of their pension liabilities by looking at much money pension assets can earn through investing. “The problem with that, though, is the value of your liabilities is independent from the value of your assets,” Norcross said. She says states should look first at their future pension liability and then work backward to set aside enough money today


North Carolina’s unfunded liabilities are 15 times higher than stated. Now, imagine the other 49 states that have not been so forthright. Pensions a burden on states? Quite!

Source: http://www.carolinajournal.com/exclusives/display_exclusive.html?id=7486

http://www.charlotteobserver.com/2011/03/06/2114757/pensions-a-burden-on-states-not.html#ixzz1Fy6cTTs4