Public Pensions: What You’re Told and What You’re Not

This month the Pew Center on the States released a report on unfunded public benefits based on 2010 actuarial reports prepared by the states showing the unfunded liabilities in these plans to be $757 billion for pensions and $627 billion for retiree heath care.  It’s not.

As well-intentioned as the Pew people are in gathering this information it’s useless even for comparison purposes since different states are at different levels of denial in regard to these costs that they are allowed to hide with the help of a non-existent regulatory framework and a compliant actuarial profession.  Even Robert Rauschenberg couldn’t turn the trash Pew collected into art.

However, the existence (though not release) of another report did come to light this week that painted a much clearer (and bleaker) picture.

Charles Gasparino revealed a couple of days ago Morgan’s big secret that J.P. Morgan, Wall Street’s leading underwriter of municipal debt, did a ‘strictly confidential’ study last year on public pension underfunding which reported:

in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.

The scandal isn’t simply that most public officials are misleading the public about the enormity of the problem and what steps must be taken to address the matter. As the Morgan report notes, many of the real liabilities are located “off balance sheet,” hidden from the public’s eye, and lax accounting standards let cities and states minimize their enormity.

It’s also that JP Morgan itself kept the report’s findings a secret except for a few big clients, mostly hedge funds and large institutional investors, who got the inside tip on which states and cities are most likely to default on their debt as their pension liabilities fester.

Yes: Default is a very real possibility, because the solutions are far from easy.

Nationwide, the actual size of unfunded public pension liabilities is four times larger than the $900-plus billion that officials are ’fessing up to. That’s right, the bank sees a $3.9 trillion hole

That report will likely remain secret from those not in the know and, as the insiders act on its findings, the hoi polloi keep getting fed tripe about 80% funded ratios and being able to get out of this mess by raising retirement ages by a couple of years for the not-yet-hried, all so they’ll keep buying the bonds of these zombie states.

Here’s a video explanation:

10 responses to this post.

  1. Posted by javagold on June 19, 2012 at 4:44 pm

    NJ has put ZERO towards health benefits for the public takers.


  2. Posted by Tough Love on June 19, 2012 at 6:21 pm

    Meridith Whitney had it right. Her timing was a bit off, and she didn’t appropriately factor in the resistance and deceit of the Public Sector Unions as well as the unwillingness of our elected officials to address it (thereby annoying their campaign beneficiaries).


    • Posted by Larry Littlefield on June 19, 2012 at 6:39 pm

      Politicians can remain irrational for longer than Meredith Whitney can keep her reputation solvent.

      At some point when the tax increases and service cuts become really devastating, some newly elected council members/legislators will demand to know why so much has to be paid now, and suggest paying it off over time.

      They’ll be told that the reason for the devastation is that their predecessors did so for 15 years.


      • Posted by Tough Love on June 19, 2012 at 6:54 pm

        Taxpayers must focus reform discussions ….. Public Sector pensions (expressed as a % of pay) for CURRENT workers must be not greater than that of the average taxpayer. Only AFTER it gets (the 50+%) REDUCTION necessary to get there will tax increases even be considered.


    • Posted by Elise on June 19, 2012 at 8:15 pm

      I thought she had it right last summer just turned out way too early. She’s coming out with a book this Fall.

      “Meredith Whitney, the banking analyst whose prediction of “hundreds of billions of dollars” of municipal-bond defaults last year didn’t prove true, plans to write a book about the market, according to the New York Times.”

      “The book, to be titled “Downgraded: Why the Next Economic Crisis Will Be Local,” is set to be published by Portfolio, a Penguin Group imprint, in November, the Times said today, citing a statement from the company. “


  3. Posted by MJ on June 19, 2012 at 6:58 pm

    This is all the same story over and over. The only thing we can be sure of is that politicians will continue to kick the can down the road, pensions and benefits will get paid and maybe there weill be additional minor reforms to keep the scam going. Every article is the same story, people have been warning of this for the past 20 years and no one listened. Now the publics want thier due and they will not go away very easily.


    • Posted by Tough Love on June 19, 2012 at 7:19 pm

      When it becomes apparent to the younger “actives” that THEIR contributions are simply going to OTHERS (those already retired and near retirement), leaving little for them …. then THEY will demand change.


  4. Posted by MJ on June 19, 2012 at 9:38 pm

    Unfortunately, the younger workers don’t have a clue and most likely could care less as they don’t understand it or chose not to say anything so as to hold onto their jobs. Should we be upset about the greedy old geezers sucking up the Social Security and Medicare living well past the time their benefits should have terminated. Its all the same story. Federal debt, state debt, municipal debt, all the same story and as much as I would like to believe that drastic change is on the way, I think we all know better. How much can the “experts” talk about the big collapse coming when there will just be another scheme to keep it going and our taxes will continue to go up.


    • Posted by muni-man on June 20, 2012 at 11:17 am

      In the battle of geezers vs. the young, I think the geezers will largely win. Stress is already starting to take its toll on the younger set, almost all of whom wear those wonderful 24/7 electronic handcuffs. Factor in Medicare eligibility almost surely getting bumped up to 68-70, increasing difficulty in getting affordable healthcare, some form of rationing very likely in the future, increasing job insecurity with a slow-to-no growth economy likely for years to come, etc. and it spells decreasing, not increasing, lifespans to me. The race is getting rattier by the hour.


  5. […] Bury has one of the smartest blogs on public pensions out there. In one post this week he contrasts the Pew Center on the States report with J.P. Morgan’s confidential […]


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