The list is up to 46 plans from 25 of our largest cities and the situation is bleaker than for the states. The important number is 10.05% and when the list is sorted by funded ratio these is a definite pattern as to which employee group has the best funded plans.
About 10% of the combined assets of these 46 plans is being paid out annually in benefits. For a mature, ongoing plan without any unusual demographic shifts that percentage should be around 3-5% depending upon the size and age of the non-retired population. Here is the easiest way to understand the concept.
Take one retiree, aged 70, getting $1,000 per year as a pension. If the fund holds $10,000 then the plan is relatively well funded. By the time our retiree dies (around age 83) there would have been enough money, augmented by earnings, to pay all benefits.
However these 46 government plans have more than those 572,497 retirees as participants. There are also 743,713 working members and $66,856 terminees who have yet to start their pensions, the vast majority of whom have made substantial contributions into the plans. It is those people who essentially have had all the money set aside for them diverted to pay current retirees.
Another interesting aspect of the data is the plans that are relatively well-funded. With the glaring exceptions of New York, Chicago and Baltimore almost all the Police & Fire plans (even Los Angeles and Miami) have funded ratios around 100%. Maybe it’s stronger unions or that these professions are not in Social Security (at least that’s the case in New Jersey) but the politicians don’t seem to want to mess with this sector……yet.
Posted by Muni-man on December 2, 2010 at 3:27 pm
Interesting stats. I knew NYC was in bad shape but the funding & payout ratios are pretty much the worst of all cities across the board except for Philly & Chicago. The stat that shows the absolute stranglehold the unions have on the city though is the employer-to-employee contribution rate. NYC is far and away paying the most here by a huge margin. Teachers – $16.04-to-$1; Fire – $10.00-to-$1; Cops – $9.13-to- $1. Staggering amounts that will crush the city. In two years they’ll be coughing up over $10B/yr. to fund their 5 plans, and the annual funding increase will be approaching $1.5B/yr. Add in the fact that the city also pays FICA for all, unlike a lot of cities that don’t kick in FICA for cops/fire, and that ALL municipal and state pensions in NY are FULLY exempt from state/city income taxes, and you’re looking at California East. They’re both gonna collapse. NJ’s not looking that bad by comparison to those two.
Posted by burypensions on December 2, 2010 at 4:03 pm
A flaw in the funded ratio data is that the same factors are being applied for all plans – a factor of 10 applied to retiree payouts and 5 to actives.
Police and Fire almost always have lower retirement ages and higher benefits so their factors would need to be higher, thus lowering the funded ratios. For example, I’m looking at Evanstan, IL now and the factor for retirees is 13.5 for police and 12.5 for fire using their valuation assumptions.
Next phase in this study may be to input valuation PV numbers for retirees though that would create issues with comparing plans using different assumptions. Alternative would be average ages for retirees and actives separately.
Bottom line is that the >100% funded ratios for some Police & Fire plans are likely illusory and the plans for Chicago Police, Chicago Fire, and New York Fire could be the worst funded plans in the country with New York Police not far behind.
Posted by Muni-man on December 2, 2010 at 4:31 pm
JB, I’d be very interested in seeing that. The retiree-to-active member ratio for the FDNY is 1.52 – only Detroit’s PD/FD is higher. The NYPD is 1.25, also higher than almost every other city, so it’s no wonder their payout ratios are so high.
Posted by Larry Littlefield on December 2, 2010 at 3:57 pm
I believe the city is also paying the “employee share” for police and fire.
Posted by Muni-man on December 2, 2010 at 4:17 pm
If NYC is actually paying in the employee’s share of FICA for cops/fire too, that’s truly unreal. The unions control the Democratic pols in NY every bit as much as they do in Calif. The only thing I haven’t seen yet in NY, is the $300K+ cops and fire like they have in some of those rinky-dink Ca. towns.
Posted by Muni-man on December 3, 2010 at 5:01 pm
A couple excerpts from a Bloomberg news article today on PensionTsunami:
1. New York City will cut 10,000 jobs during the next 18 months. That will help pay for an 18.5% increase in pension costs, to $8.3 billion, or 20% of projected tax revenue in 2012, according to Marc LaVorgna, a mayoral spokesman. A decade ago, New York’s pension costs were 4.8% of revenue.
2. In Los Angeles, pensions and health care will cost more than $800 million or 18% of revenue this year, according to City Administrative Officer Miguel Santana. Ten years ago, they cost $164 million or 5.1%.
These trends are happening in virtually every big city. Pols & unions flagrant self-dealing created this monster. Now pols are desperate to find a way out of this, but there isn’t any way short of massive benefit reductions or folding the plans outright and returning the remaining assets to plan members. Courts can rule whatever they want but taxpayers aren’t gonna pay ever-increasing taxes to fund these ridiculous benefits, as the unions would like to think they’ve got bulletproof contractual protections, etc. Increasingly, pols are starting to grasp this fact and they’re scared s***less about what they’re ultimately gonna have to do. Gonna be a lot of major setbacks for public employees going forward as this plays out nationally.
Posted by Larry Littlefield on December 4, 2010 at 8:44 pm
There should be an analysis about who much of this disaster has been caused by all those retroactive pension enhancements, and how much is caused by underfunding the pensions that were promised to begin with (circa 1990).
What I don’t accept is “circumstances beyond our control.” We’ve had bubbles and busts — the pension promises should not have retroactively and irrevocably been based on the bubbles. How can you project an 8.0% return with a 2.0% dividend yield or less?
Posted by Muni-man on December 7, 2010 at 4:18 pm
Just-released Empire Center Report on the pension time bomb for NY State and NYC.
Looks like the pols are still determined to try to fund these ‘whales’ for awhile longer.
The amount these plans are costing taxpayers is simply unbelievable.
http://www.empirecenter.org/Documents/PDF/PensionExplosion.12.20102.pdf
Posted by Monex on December 30, 2010 at 6:34 am
Such concerns have led to a government review of pensions policy which is due to be published next week. This solution sends a clear signal as you live longer so you will have to work longer or save more if you want to retire in comfort..The idea of a normal retirement age belongs to another era.