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General Category => General Discussion => Topic started by: clean on October 15, 2019, 09:31:07 PM

Title: every states pension crisis ranked
Post by: clean on October 15, 2019, 09:31:07 PM
https://www.msn.com/en-us/money/markets/every-states-pension-crisis-ranked/ss-AAIDDUD?li=BBnbfcN

this is a link to an online article that ranks the pension deficit by state. 
"To rank the severity of each state’s pension crisis, 24/7 Wall St. reviewed the average pension funding ratio -- the market value of a pension fund as a percentage of the total benefits owed to current or retired public employees -- for all 50 states as of 2017 with data from The Pew Charitable Trusts."

Where does your state rank?  Are you worried?  Will this news change the way you prepare for retirement?

My own retirement is in a defined contribution plan (the 'other' plan), not the traditional pension plan.  However, even if your retirement is safe, IF your state is running a deficit for its pension obligations, one sure cure is to raise taxes (and thus reducing your disposable retirement income)
Title: Re: every states pension crisis ranked
Post by: spork on October 16, 2019, 02:22:45 AM
I think it would be interesting to compare this list with a list that ranks states by age of population. I live in a state with a rapidly aging population, which hypothetically means increased demands on government pension funds in the future combined with a smaller workforce paying income taxes.
Title: Re: every states pension crisis ranked
Post by: clean on October 16, 2019, 08:45:21 AM
I think that another statistic that would matter would be to take the pension deficit and divide it by the state's annual budget.  For my current state, the pension shortfall is about 26% the size of the annual budget this year! 

Of course, part of this problem, from my recollection of the accounting treatment for pension plans, is a result of the decade plus long period of low interest rates.  The low rates has 2 impacts.  The Liability created by the promised pensions is much higher when the interest rate is small.  The second is that the ability for the investments to grow to help pay for those liabilities is hampered when the return is low.  (and all returns are based on the Risk Free rate, influenced by the Federal Reserve).  So, IF we were forecasting 'more normal' (whatever THAT means)  interest rates (were interest rates were closer to the historic mean), then the liability would be lower and the potential returns higher, thus reducing the funding deficit. 

Still, IF someone in the state got a bee in their bonnet to close this funding gap, in the short term, assuming a balanced state budget, taxes would have to go up by 5% if someone tried to close this shortfall over 5 years, and 2% over 10!  What impact would a 2% increase in your sales tax (or property taxes) have on YOU?

Illinois has been the state on my radar for the worst case.  They have a shortfall of 136.9 Billion!!  (CA has the highest at 190B, but CA has a much bigger economy and is much better funded).  New Jersey looks to be even worse,with a funding shortfall of  142.3B!  However, I do not know how NJ and IL economies compare, but Im pretty sure that even combined their economies are smaller than CA!

Anyway, I am glad that I am in the Optional Retirement Account, rather than the Defined Benefit account.  Over the next 10 or 12 or 15 years, before I plan to begin to collect Social Security, I will be shifting as much as I can from traditional accounts to Roth accounts to minimize total income tax liabilities. 
Title: Re: every states pension crisis ranked
Post by: larryc on October 16, 2019, 09:59:39 AM
I will retire with pensions from Missouri and Washington.

*deep breath, clicks link*

So Washington is pretty sound at #42, which is about what I figured. And Missouri at #33 is a lot better than I would have guessed--I figured as a red state they'd be much worse.

Phew!
Title: Re: every states pension crisis ranked
Post by: pgher on October 16, 2019, 10:16:42 AM
Illinois has been the state on my radar for the worst case.  They have a shortfall of 136.9 Billion!!  (CA has the highest at 190B, but CA has a much bigger economy and is much better funded).  New Jersey looks to be even worse,with a funding shortfall of  142.3B!  However, I do not know how NJ and IL economies compare, but Im pretty sure that even combined their economies are smaller than CA!

I used to be in the Illinois pension plan. I had a portable plan, so as SOON as I could, I took my money away from those crooks. For decades, given the choice between raising taxes and cutting spending, they have chosen instead to do neither.

Not sure what the problem is in New Jersey, but Illinois has a big divide between Chicago and the rest of the state. Screws up the politics and finances.
Title: Re: every states pension crisis ranked
Post by: mahagonny on October 17, 2019, 01:44:56 PM
https://www.msn.com/en-us/money/markets/every-states-pension-crisis-ranked/ss-AAIDDUD?li=BBnbfcN

this is a link to an online article that ranks the pension deficit by state. 
"To rank the severity of each state’s pension crisis, 24/7 Wall St. reviewed the average pension funding ratio -- the market value of a pension fund as a percentage of the total benefits owed to current or retired public employees -- for all 50 states as of 2017 with data from The Pew Charitable Trusts."

Where does your state rank?  Are you worried?  Will this news change the way you prepare for retirement?

My own retirement is in a defined contribution plan (the 'other' plan), not the traditional pension plan. However, even if your retirement is safe, IF your state is running a deficit for its pension obligations, one sure cure is to raise taxes (and thus reducing your disposable retirement income)

...As well as the disposable income of all workers who are not in the state pension plan and will never be.
Title: Re: every states pension crisis ranked
Post by: Vkw10 on October 17, 2019, 07:49:14 PM
My current state is increasing mandatory contributions to pension plan annually for three years with goal of being above 95% funding within ten years. I heartily approve, despite the likelihood that my net pay will decrease, because I want a stable pension when I retire in 6 years. Former state has also increased contributions, but needs to do more given how badly pension plan is funded.
Title: Re: every states pension crisis ranked
Post by: Bbmaj7b5 on November 09, 2019, 03:50:32 AM
I am in our Optional Retirement Plan as the state plan isn't very good. Still, my state (Texas) did not fare badly in this comparison.

I also spent just under half of my career with the Federal government and have their pension + defined contribution plan in my portfolio.
Title: Re: every states pension crisis ranked
Post by: Hegemony on November 09, 2019, 04:05:17 PM
It says "Click ahead to see every state's pension crisis ranked."  (Why can't they just put it on the same damn page?)  When I click the "1 2 3 4 >" page thing, the ads change but the text remains the same.  Nothing else I click produces the ranking.  What am I doing wrong?  Or is there a glitch?  (Never mind: I found the infuriating one-at-a-time slides.  Why do I need a picture of New York City to read about New York's pensions?)
Title: Re: every states pension crisis ranked
Post by: Anselm on November 09, 2019, 05:06:31 PM
I have a random vague observation or suggestion without any data to back up what I am saying.  Maybe our tax systems and spending choices are outdated for modern society.   It is not just pensions but also schools and infrastructure that are threatened.   In the past it was assumed that families would have 3 or 4 children and stick around.  No one imagined that elderly would flee to the Sun Belt.  Until we had widespread air conditioning that was not an option.  Then we got cheap airfares to that the grandparents can return to visit family.  People today vote for generous school funding and then leave for lower taxes after their children graduate.  The poorest people tend to stay behind.   Politicians assumed that people had to be in the big cities for the economy.  Businesses had to be there to access customers.  That was before highways and the internet.   Then throw in offshoring and the rise of the service economy.  I suspect that this might not be a problem in other nations with different taxation methods.   

Keep in mind that Illinois teachers only have their pensions.  They don't get Social Security.  Many people I grew up with in Illinois have since relocated to Indiana and property tax is the biggest reason.
Title: Re: every states pension crisis ranked
Post by: Hegemony on November 09, 2019, 07:01:55 PM
Having 1-2 children would be better for the school system than 3-4 children, no?  Because if the folks are paying the same amount in property tax no matter how many children they have, there's more money for those 1-2 children than there would have been for those 3-4 children.  That is, if they pay $2000 per year toward schools, that's $1000 per child to educate 2 children, rather than $500 per child to educate 4 children.
Title: Re: every states pension crisis ranked
Post by: Anselm on November 09, 2019, 07:18:14 PM
Having 1-2 children would be better for the school system than 3-4 children, no?  Because if the folks are paying the same amount in property tax no matter how many children they have, there's more money for those 1-2 children than there would have been for those 3-4 children.  That is, if they pay $2000 per year toward schools, that's $1000 per child to educate 2 children, rather than $500 per child to educate 4 children.

Yes, that is true.  I was thinking long term about population growth and expected higher tax revenues that could support state pensions. 
Title: Re: every states pension crisis ranked
Post by: clean on November 09, 2019, 08:54:46 PM
perhaps a different thread is peaking through.

In my area, not too long ago, the voting citizens (and we know who mostly votes), voted to lock the tax assessment for those over 65.   
I understand the idea that people on a fixed income should not be forced from their house because the value of their property increased so that the taxes would force the resident to sell because they could no longer afford the taxes.  However.... In my area, the people living in the 'richest' part of town are generally over 65.  Those waterfront houses are not owned by people with school aged children, but their taxes are now locked in so that the ones that ARE paying the increases in taxes are the people struggling to make ends meet while raising their kids and paying daycare!

I also understand the arguments around 'tax breaks' going to the rich.... as they are the ones that are paying most of the income taxes. Low income people pay much less taxes, so the arguments that some make that the 'poor' didnt get a tax break... it is hard to get a huge break when your taxes are already low.

But as I said, it looks like we are digressing. 
The issue with state pensions is multifaceted.  Historic low interest rates increase the value of the pensions promised while at the same time, reducing the return that can be earned to pay the benefits.  Increasing taxes, cutting benefits, or requiring higher contributions from the current employees to pay the promises made not only to those workers but the ones already retired.

Will the states be forced to declare bankruptcy?  IF they do, what does that mean for the promises that have been made to the retired, or near retired workers if the state is simply unable to pay?  As we have seen in other areas that have had financial problems, pensions have simply been cut, and sometimes drastically!  Worse, the Pension Benefit Guarantee Insurance Corp (PBGIC - the FDIC for pension plans) does not cover state and government pension plans!

but those are the ramblings of one who may be coming down with something, so take with a grain of salt!
Title: Re: every states pension crisis ranked
Post by: mahagonny on November 10, 2019, 06:00:33 AM
perhaps a different thread is peaking through.

In my area, not too long ago, the voting citizens (and we know who mostly votes), voted to lock the tax assessment for those over 65.   
I understand the idea that people on a fixed income should not be forced from their house because the value of their property increased so that the taxes would force the resident to sell because they could no longer afford the taxes.  However.... In my area, the people living in the 'richest' part of town are generally over 65.  Those waterfront houses are not owned by people with school aged children, but their taxes are now locked in so that the ones that ARE paying the increases in taxes are the people struggling to make ends meet while raising their kids and paying daycare!

I also understand the arguments around 'tax breaks' going to the rich.... as they are the ones that are paying most of the income taxes. Low income people pay much less taxes, so the arguments that some make that the 'poor' didnt get a tax break... it is hard to get a huge break when your taxes are already low.


It's also hard to get minimum wage up to a living wage. So people who are making five million dollars a year on the stock market can still walk into a CVS and get service from somebody who works for $7.25 an hour and has three roommates to help with the rent. Where is the argument that the poor should pay any taxes at all when we intentionally keep them poor/employed?
Yes, another thread where we can have a bare knuckle fight over tax policy. Fun!