Public Pension Collapses – Who’s First

The American Enterprise Institute listed a top 10. came out with a top 15.  I’ve got my own list.

All predict bankruptcy for public pensions based on their funded ratios.  But, who’s first?

On the local level it’s already happened in Passaic County, NJ but those retirees are still being paid by current taxpayers.  That’s not the case in Prichard, Alabma.  There may be others but, without any oversight mechanism of public plans, they might be buried in budgetese.

Of the state plans, the one for Minnesota Elective State Officers is essentially taxpayer funded.  $442,099 was paid in (all by taxpayers) and $440,432 was paid out for the year ended June 30, 2009.  As of 6/30/09 the plan reports having $213,165 in assets of some sort.  Plans for legislators in Illinois, South Carolina, and Minnesota all have funded ratios under 40% and are paying out about 25% of their remaining assets annually.

Of the larger plans ($10 billion in assets) it’s the Kentucky Retirement System at 36% funded with 15% of assets being paid out annually.

At the next level ($30 billion) it’s the Illinois Teachers Plan (41%; 13%).

At the mega-level ($74 billion) it’s New Jersey (50%; 10%).

The situation is direr than the numbers reveal.  Consider New Jersey:

  1. Having a funded ratio of 50% means that there should be twice as much money in the plan right now to cover promises accrued to-date.  Future taxpayers in the state can’t afford to pay for current accruals, much less make additional contributions amounting to EVERYTHING that all prior taxpayers have put in.
  2. About $30 billion of those assets are from the employees’ own contributions with interest that will need to be returned upon plan termination.
  3. If you’re refusing to pay even an actuarially minimized contribution amount while applying benefit ‘reforms’ only to new-hires where the impact might start being felt around 2035 then you’re part of the problem.

That is why I predict New Jersey as being the first major public pension plan to go bust.

5 responses to this post.

  1. […] Based on AEI’s Andrew Biggs’ paper, An Options Pricing Method for Calculating the Market Price of Public Sector Pension Liabilities, Business Insider generated an interactive map of when state pension plans run dry. John Bury has his own estimates based on his analysis, which can be found here. […]


  2. Christie has (I hope) good intentions with his desire to roll-back the 2001 9% increase.

    Unfortunately, that (which by itself will find TREMENDOUS fight-back from Public workers) is vastly insufficient.

    Best would be a hard freeze for BOTH new and CURRENT workers with introduction of a 401k-style plan…. with a MODEST taxpayer contribution.

    However, the likelihood of THAT being so small, the NEXT-BEST option and desperately needed, is a rollback of pensions accruals for FUTURE years of service (for CURRENT employees) to a level no greater than that (as a % of cash pay) afforded the agerage Private Sector worker by their employers.

    By the way …… because Public sector plans are currently SO generous, THAT would likely be a reduction of OVER 50% …. not the ineffective 9% now touted by Gov. Christe


  3. Posted by Charles Sainte Claire on January 3, 2011 at 5:29 pm

    Golly, Bill! Prichard County who have had two opportunities to go bankrupt and rethink their bills is now not paying their promised employee’s pensions. And letting them starve or die. Meanwhile, what do the County politicians earn? Surely enough to put together a small pot of money to keep a retired employee from freezing to death!

    And how is Boss Hoggs doin?.

    I thought so.


  4. Posted by muni-man on January 3, 2011 at 5:45 pm

    Chicago should be real interesting if/when the Guv. tries to lay a huge pension contribution on them that outgoing Mayor Daley says will result in about a 60% property tax hike; the state Teachers’ plan has drawn out ~$3B to keep pension payments going this year, etc. Guvs. Moonbeam and Cuomo should be providing a lot of entertainment on how they’re gonna wrestle their monsters to the ground in Ca. and NY. Meanwhile, Christie will be staging NJ’s version of High Noon with the Legislature in another couple of weeks. If they refuse his reforms, he should simply continue to refuse to pay another $ into the plans until they do and let the towns keep cutting public employees to meet the tax cap. This is really evolving into public vs. private sector warfare now. Since the private sector has 6x the number of workers as the public sector, I believe they’ll come out on top in the end, but it’s gonna take a few years before the unions are beaten back. The GOP has a record number of Guvs in statehouses now, and control of the House, so the Dems are gonna be in major retreat for the next several years at least. Now’s the time to get major reforms done. I think a major municipality will be the first to go under – Philly, Chicago or L.A.


  5. Posted by Minnesotan on March 10, 2014 at 10:58 am

    There are 15 members in that MN plan that you link to. It’s a bit of a red herring to call it a ‘state pension plan’. It’s a program at the end of its life.


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