Pension Crisis: Private vs. Public Approach


You really need to be a pension actuary to grasp the full scope of the public pension tsunami about to strike but, even to civilians, the undertow is palpable – so they react.

In the private sector we have Morningstar, Inc., a leading provider of independent investment research, today publishing a  report, “The State of State Pension Plans: A Deep Dive into Shortfalls and Surpluses,” analyzing current data for pension plans administered by all 50 states.  According to an article in Yahoo Finance:

“Our analysis of the fiscal health of state pension plan systems across the country found that creditworthiness varies greatly and is heavily dependent on the funded ratio and the unfunded liability per capita—we look at both key metrics to evaluate each state’s system. We find the UAAL metric useful because it represents the burden on residents, though it isn’t widely used in the industry as an evaluation tool,” said Rachel Barkley, municipal credit analyst for Morningstar. “Not only do state pension plan systems represent the state’s financial obligations, but they are often structured as umbrella plans that also cover employees in the state’s local government bodies. Because pension liabilities represent significant long-term obligations for government entities, pensions are an important element in determining a municipal entity’s credit quality.”

Jeff Westergaard, Morningstar’s director of municipal analytics, added, “We’ve heard much discourse on the subject of pensions over the last few years, resulting in more confusion than clarity on how to view this important area of municipal finance. Our hope is that Morningstar’s analysis will help cut through the clutter and offer logical, clear analysis for investors to understand each state’s situation and the broader implications of their pension system’s financial status.”

Yes it’s a crisis and this private company takes it seriously and has undertaken a project to gather data and educate stakeholders with the goal of seeking solutions.  Contrast that to the public sector where coincidentally the state which Morningstar said has the weakest-funded system, with a 43.4 percent funded ratio and a liability of $6,505 per resident recently came up with their own initiative:

Squeezy the Pension Python

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6 responses to this post.

  1. Posted by Ed Vant Jr. on November 26, 2012 at 6:22 pm

    John, There is no way to get the full report?! Regards, Ed Vant, Jr, What about Ne Jersey?

    Reply

  2. Posted by Tough Love on November 26, 2012 at 7:55 pm

    John, Do you know if Morningstar used each State’s “official” unfunded liability figures, or if they worked up their own estimate with more conservative investment return and/or liability discount rate assumptions ?

    Use of the “official” unfunded liability figures would almost certainly understate the problem.

    Reply

    • Pretty sure it had to be official liabilities since there would be no practical way to equalize (a lot of work) plus in the Yahoo article they have the Morningstar people admitting of the
      “challenges of comparing state pension plans, shortcomings in disclosure and transparency, and expectations about pension reform”.

      Reply

  3. Posted by Anonymous on November 26, 2012 at 8:03 pm

    Fort Lauderdale Mayor just said that it is going to cost the taxpayers millions to repair the damage the Hurricane Sandy did.

    Reply

  4. Natural disasters may create a mayhem in the country and destroy the economic situation of any country. Mayor told We could see tough time.

    Reply

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