January 20, 2011

States Warned of $2 Trillion Public Service Union Pensions Shortfall! WOAH!

Public Service Unions would rather bankrupt states that will be forced to cut public services as a result, than give up their cushy privatized pensions on our dime! Their greed is going to cause a massive public sector layoff in the states and local cities. It's like they're shooting themselves in the foot. All of America is going to suffer because of their greed.

How many of you know that our government EXEMPTED public service unions and themselves from having to pay into our mandatory Social Security government run retirement income and are also EXEMPTED from Medicare that is mandatory for the rest of us Medicare is a government run retirement medical coverage. Can you see that there is something wrong with this picture?! Our government officials and public service employees get the BEST cushy privatized retirement pension accounts on the taxpayers dime and they also get the BEST retirement medical benefits on the taxpayers dime and the taxpayers are FORCED into the government run programs. They should have NEVER been exempted! Whatever laws our government passes and imposes onto Americans should apply to them as well.


written by Nicole Bullock, Financial Times
Tuesday January 18, 2011

US public pensions face a shortfall of $2,500 billion that will force state and local governments to sell assets and make deep cuts to services, according to the former chairman of New Jersey’s pension fund.

The severe US economic recession has cast a spotlight on years of fiscal mismanagement, including chronic underfunding of retirement promises.

“States face cost pressure, most prominently from retirement benefits and Medicaid [the health programme for the poor],” Orin Kramer told the Financial Times.

“One consequence is that asset sales and privatisation will pick up. The very unfortunate consequence is that various safety nets for the most vulnerable citizens will be cut back.”

Mr Kramer, an influential figure in the Democratic party and still a member of the investment council that oversees the New Jersey pension fund, has been an outspoken critic of public pension accounting, which allows for the averaging of investment gains and losses over a number of years through a process called “smoothing”.

Using data from the states, the Pew Center on the States, a research group, has estimated a funding gap for pension, healthcare and other non-pension benefits, such as life assurance, of at least $1,000 billion as of the end of fiscal 2008.

Chris Christie, the Republican governor of New Jersey, said in his state of the state speech last week that, without reform, the unfunded liability of the state’s pension system would rise from $54 billion now to $183 billion within 30 years.

Mr Kramer’s estimates are based on the assets and liabilities of the top 25 public pension funds at the end of 2010. The gap has risen from an estimate of more than $2,000 billion at the end of 2009.

He also used a market rate analysis based on the accounting used by corporate pension funds rather than the 8 percent rate of return that most public funds use in calculations. Pension liabilities are not included in state and local government debt figures.

Concerns about the financial health of local governments have sparked warnings of a rise in defaults for cities and towns and a sell-off in the $3,000 billion municipal bond market where they raise money.

Last week, the interest rate on 30-year top rated municipal debt rose above 5 percent for the first time in about two years.

Amid the volatility, New Jersey had to cut the size of a planned bond sale. Although Mr Kramer said some local governments would experience “severe strain”, he did not foresee mass defaults.

“I don’t assume that you will have that level of defaults just because there are various remedies, including asset sales, that you can engage before you have to default,” he said.

“States have an interest in their major municipalities not defaulting.”

The state of Pennsylvania, for example, last year advanced money to Harrisburg, its capital, so that the cash-strapped city could avoid a default on its general obligation bonds.

In February, Illinois, which is facing an unfunded pension obligation of at least $80 billion, plans to sell $3.7 billion of bonds to pay for its annual contribution.

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