Pension Prelude to Bond Defaults

Coincidentally both Puerto Rico and Atlantic City faced default on bond payments today but they have something else in common.

Both sponsor pension systems that are essentially pay-as-you-go with Puerto Rico’s plan having an 8.4% funded ratio as of 2012 and Atlantic City having employees as part of the New Jersey Retirement system and a Beach Patrol pension plan with improperly valued liabilities, arbitrary contribution requirements, and no foreseeable means of being able to pay out anywhere near the benefits promised (referring to both the New Jersey and Beach Patrol plans).

Of course there is no funding requirement for public plans but there is also no prohibition against funding these plans if a governing body wanted to be responsible.

That both Puerto Rico and Atlantic City (directly and through being in New Jersey) chose to ignore massive pension liabilities because no effective outside forces existed means that when an outside authority (in this case the bond market) does exist it may be too late.

6 responses to this post.

  1. Posted by FAP on May 2, 2016 at 1:31 pm

    Pensions are promises politicians can make today that future officials will have to find a way to pay for. It’s the perfect payoff for political support…. as long as you’re not the future politician who has to find the money.

    Reply

  2. Posted by S Moderation Douglas on May 3, 2016 at 7:06 pm

    Well, this is ……..different. Instead of allowing states to file bankruptcy, which, in the example of most cities lately, means big haircuts for bonds and a light trim (if that) for pensions, why not just write a law that pensions can be cut (even for those already retired) without affecting any other state debts a’tall? Whut could go wrong?

    http://www.chicagotribune.com/news/opinion/commentary/ct-illinois-pensions-bankruptcy-congress-retirement-perspec-0429-jm-20160427-story.html

    Reply

  3. Posted by MJ on May 3, 2016 at 7:37 pm

    mmmmmmm…….I thought I read where AC Mayor made the payment? They are all crazier than loons but I guess if they just wait long enough, the problem will go away and all the salaries, benfits and pensions will be paid into infinity and beyond

    Reply

    • Posted by PS Drone on May 3, 2016 at 8:27 pm

      So you think he magically came up with the $1.8MM payment because all of the sturm und drang was all political bullsh-t as per normal? No wonder no one believes these pathological liars anymore.

      Reply

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