New Taxes For Public Pensions?

Many public pension funds, with New Jersey in the forefront, have been getting massive earnings by investing in Alternative Investments. Whether these gains are illusory or not is not the issue. The federal government has taken notice.

According to a Pension & Investments article:

Executives at public pension plans and other state and local entities were equally shocked to learn they could soon have to pay taxes on income earned from investments, as early as 2018. The House wants to expand the rules on unrelated business taxable income, or UBTI, reversing a long-held belief their status as tax-exempt public entities under another tax code section covers investment income as well.

It would also upend a preference of some state pension funds to invest directly in hedge funds, private equity funds or other taxable vehicles, with confidence in the pension fund’s tax-exempt status, which the House bill would take away.

That prospect has sent officials at public pension funds, like the $94 billion North Carolina Retirement Systems in Raleigh, scrambling to calculate how it will affect them.

In addition to worrying about how the potential compliance costs would affect portfolio construction and benefit payments, state pension officials are questioning the constitutionality of the federal government imposing taxes on state or local governments’ after a history of immunity.

According to The Pew Charitable Trusts research:

State and locally run retirement systems currently manage over $3.6 trillion in public pension fund investments, most of which are held by states. Broadly, half of these assets are invested in stocks; a quarter in bonds and cash; and another quarter in what are known as alternative investments, such as private equity, hedge funds, real estate, and commodities.

Although governments and employees contribute to pension funds, investment earnings on plan assets are expected to pay for about 60 percent of promised benefits. In a bid to boost investment returns and diversify investment portfolios, public pension plans in recent decades have shifted funds away from low-risk, fixed income investments such as government and high-grade corporate bonds. During the 1980s and 1990s, plans significantly increased their reliance on stocks, also known as equities. And over the past decade, funds have increasingly turned to alternative investments to achieve investment return targets.

It looks like it won’t be bailouts that state public pension funds can expect from Washington, but tax bills.

13 responses to this post.

  1. Posted by dentss dunnigan on November 13, 2017 at 3:43 pm

    So just pass the bill along to the retirees …deduct the taxes from the pension checks …

    Reply

  2. Posted by Anonymous on November 13, 2017 at 4:48 pm

    Hmm so I guess the Feds are exempt, can’t pay themselves, how convenient! Keep printing the $$ to fund their Fed pensions on the back of a devaluing dollar!

    Reply

  3. Posted by Anonymous on November 13, 2017 at 4:53 pm

    Beauty and the beast of politics is change for the good is just another election away, regardless of your party preference just wait and your time is gonna come
    Taxes this time, bailout next time, then back to taxes – talk about spinning your wheels!

    Reply

  4. Posted by Pat W on November 13, 2017 at 7:09 pm

    Investing in Market rate TBs will result in a loss of equity as they will not keep up with inflation. Loser. Investing in index funds, while reasonable and advisable on some level, will also not “beat” the street. Average / mediocre returns at best. The only way to make any real money is to invest in particular stocks or alternative investments. The difficulty with alternative investments is valuation. what is a monet worth? What will it be worth when others are discovered? Very precarious.

    It ruptures me that my checking account pays 0% and my savings account pays 1% while the lowest home credit card I have charges 12%. Tell me they are not making money hands-over-fist! lol. What a scam. Even when factoring in loss and bad debts, the banks are making a fortune. I say Tax the rich to 70% (just as in the 70’s), and guess what?….they will STILL MAKE A FORTUNE. How much money is too much?

    and for NJ pensions….? Pass a constitutional amendment to fully fund the pension (at the expense of social programs….so what… and let’s go. This is a democratic state and we need to pay our bills.

    Reply

    • Posted by Anonymous on November 13, 2017 at 7:24 pm

      Pat W I’m not sure what to say except TL loves you baby!

      Reply

    • Posted by George on November 13, 2017 at 8:32 pm

    • Posted by Tough Love on November 13, 2017 at 8:57 pm

      Quoting …..” Pass a constitutional amendment to fully fund the pension (at the expense of social programs….so what… and let’s go. This is a democratic state and we need to pay our bills.”

      By “pay our bills”, don’t you mean ………… pay all of the Promised Public Sector pensions, not matter how unnecessary, unfair to Taxpayers or unaaffordable, and no matter that their now ludicrously excessive level is the direct result of collusion between the Public Sector Unions and our self-interested Elected Officials ?

      I’d prefer a law that caps pensions at the maximum payable under Social Security .. about $35K annually.

      Reply

  5. Posted by George on November 13, 2017 at 8:24 pm

    They are going after University endowments? Can trust funds be far behind? That’s a surprise.

    Reply

  6. Sounds like they will be going after anything they can……why aren’t NJ pensions taxed? Isn’t it a pre-tax deduction from paycheck?

    Reply

  7. Me thinks they will be going after anything that they can that is reasonably fair game

    Reply

    • Posted by George on November 15, 2017 at 8:16 am

      Who is ‘they’. In the US we have at least 3 theys – Local, State, and Federal. Here in NJ there might be County and Port Authority theys. Do we pay taxes to the UN? Who pays for The Hague?

      I have noticed that offshore assets are in the news. I suspect Cayman Islands will not be able to resist foreign aggression to loot those assets.

      Reply

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