The following recent broadcast by "Need to Know" may provide some
useful data.
http://www.pbs.org/wnet/need-to-know/economy/video-are-public-
employee-unions-to-blame-for-states-budget-problems/7904/
http://tinyurl.com/4hyt6jw
"Public plans are substantially underfunded, however, in the
aggregate they only account for 3.8% of state spending."
"... long term patterns indicate that the average compensation of
state and local employees is not excessive."
The current underfunding of pension plans is not unique to government
pensions - it is true of private pensions as well. This is largely
the fault of congress which permitted, over recent decades, the
raiding of pension funds based the diminishing of contributions based
on prevailing interest rates and stock market performance.
I have my own explanation as well. In addition to the long term
underfunding, the short term retirement fund crisis can be in part
blamed on the Fed., for dropping interest rates to near zero. This
diminishes the dividends or fixed interest rates the pension funds
can earn. This in turn increases the actuarial value required to
fund a fixed pension. For example, to fund a $10,000 pension when a
fund can earn near 5% takes only about $200,000. However, when
interest rates drop to 1.5%, it takes about $670,000 to fund the same
benefit. A $200B fund that was marginally solvent at 5% rates,
suddenly requires $670B to be fully funded, thus is instantly facing
a $470B underfunding. The stock market may stay afloat but the
dividends and interest drop and the pensions become underfunded.
Lets hope the pension guarantee fund can stay afloat or private and
government pensions will disappear alike. We also should hope
insurance companies and banks paying annuities and carrying straight
life balances manage to stay afloat, for the same reasons.
As for pay being equivalent in the long term, that is no surprise
either. Salary negotiations with unions are often based on local
salary surveys, taken periodically, e.g. every 5 years or so, which
take into account salary and benefits, as well as skill levels,
longevity, and job definitions. It is no accident that independent
survey mentioned in the above broadcast found that the average
compensation of state and local employees is not excessive.
Best regards,
Horace Heffner
http://www.mtaonline.net/~hheffner/
