COVID-19 Impact on State Pension Plans

Reason Foundation and the Pew Charitable Trusts looked into it this week and below are their thoughts.

Some state pension systems were nearly fully funded before the current crisis, and therefore figure to be in better shape to survive it without major problems. States like Kentucky, Illinois, and New Jersey were already in terrible shape are now facing a serious crisis.

“Worse, this is coming after a decadelong bull run in the markets where pensions failed to gain much, if any, ground in terms of funding after the last downturn,” says Len Gilroy, managing director of the Reason Foundation’s Pension Integrity Project. “It’s becoming apparent that we’ve just experienced a Lost Decade for public pension solvency and that policy makers will need to abandon the failed myth that they can invest their way out of this problem.”

If its investments lose 15 percent this year, for example, New Jersey’s teachers’ pension system would find itself with a mere 30 percent of the assets necessary to cover its long-term costs, and with an unfunded liability of more than $40 billion.

The economic downturn creates a one-two punch for state pensions. Because of the way most public pension funds are structured, lower-than-anticipated investment returns must be made up with tax dollars. But, now, states are also expecting steep drops in tax revenue. Already, those prospects are causing some state officials to seek a federal bailout. New Jersey State Senate President Stephen Sweeney has called for the feds to offer low-interest loans to states facing severe pension problems.

The pressure to meet pension funding targets will be most acute in jurisdictions that had severely underfunded pension systems before the pandemic took hold. In Illinois, for example, nearly 1 in 5 state tax dollars is already going to pay for pensions before factoring in any revenue declines. And in New Jersey, the state’s current pension funding schedule calls for an increase of more than $800 million in state contributions next year, 20 percent above this year’s requirement.

Although the impact of the pandemic on asset prices and government revenue will hit all state and local pension plans, the severity is expected to vary, with some jurisdictions likely to remain relatively stable because of policies put in place before the downturn. Wisconsin and South Dakota in particular may weather the current downtown better than many others, in large part because of variable benefit features known as cost sharing. These mechanisms distribute risk among employers, employees, and retirees to protect plan fiscal health and stabilize employer costs. The outcomes for Wisconsin and South Dakota, as well as states that recently adopted cost-sharing policies, may influence whether similar provisions are considered in other jurisdictions in the years ahead.

24 responses to this post.

  1. Posted by NJ2AZ on April 26, 2020 at 10:12 pm

    i won’t hold my breath, but here’s to hoping

    Reply

    • Posted by PS Drone on April 26, 2020 at 11:01 pm

      My question is, who will bail out the Federal Govt.? I guess they are relying on hyper-inflation to do the trick. Or, as Elizabeth Warren says, “there’s always money”.

      Reply

      • Posted by Tough Love on April 26, 2020 at 11:09 pm

        America is traveling a VERY dangerous/risky financial road.

        Reply

        • Posted by NJ2AZ on April 26, 2020 at 11:37 pm

          i suppose the question is: can we keep the inflation confined to things like real estate, financial instruments, and healthcare?

          Reply

          • Posted by geo8rge on April 27, 2020 at 7:51 am

            real estate – Even before covid I noticed empty stores and space available signs usually in strip malls. Restaurant/bars were filling unused space and providing jobs.

        • Posted by Marine1 on April 27, 2020 at 6:55 pm

          TL- The moment the Federal Government decided it was ok to bail out banks,”small”businesses,farmers and everyone else who had their hand out we were in trouble. Honestly why shouldn’t the states get money back that they sent to the Federal Gov. to offset the money lost to this virus ? Everyone else is/has been bailed out. Regardless of if money was used for pensions it should be given to fill holes in the budget that was used for this virus.

          Reply

          • Posted by E on April 27, 2020 at 8:20 pm

            Because she feels that the small businessman can take the loan no problem, and rescue and allow his business to flourish with that dough but not you. Simple as that. I agree with you Marine. That is fair.
            Use it to prop up the budget which includes the normal pension payment. Lord knows we send more to DC. She is against your pension. That is why she feels that way. Quite frankly no other reason.

          • Posted by Tough Love on April 27, 2020 at 8:31 pm

            Quoting Martine1…………..

            “Honestly why shouldn’t the states get money back that they sent to the Federal Gov. to offset the money lost to this virus ?”

            They should, and to a large extent they already HAVE.

            What NJ (and other States) should NOT get is money that either directly or indirectly funds Public Sector pensions.

            No Pension Bailouts. Instead, reduce the ALWAYS-Ludicrously excessive Public Sector pension promises.
            ————————-

            E, You would agree with anything that takes more money out of Taxpayer pockets just to fund your ridiculously excessive pension & retiree healthcare benefits.

          • Posted by Marine1 on April 27, 2020 at 9:11 pm

            E-Looks like McConnell has already changed his mind. Will give aid to states in exchange for lawsuit protection for employers,hospitals,etc. I have no problem with that. Private sector workers are going to have to live with covid-19 risk just like first responders have all along and without being able to sue provided CDC guidelines are being followed. All for it.

          • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on April 27, 2020 at 9:44 pm

            Regardless of if money was used for pensions it should be given to fill holes in the budget that was used for this virus.
            Bullshit. If the States and Muni’s behaved responsibly with their funds, and didn’t gift it all out on $200K/year GED gov employees like YOU then there would have been PLENTY of $$$ there right now.

          • Posted by Tough Love on April 27, 2020 at 9:52 pm

            Marine1,

            It DOESN’T appear that trump is supporting any State bailouts ……….

            https://www.politico.com/news/2020/04/27/trump-against-state-bailouts-governors-cry-foul-211815

          • Posted by Marine1 on April 28, 2020 at 7:27 am

            TL- Now you believe what Trump says. You’re hilarious.

          • Posted by E on April 28, 2020 at 9:30 am

            @TL. Yes. Because I know that the pension costs of the average taxpayer for police is minimal. We figured that out together once before.
            Marine1 is right, as am I, now is NOT the time to shortchange first responders who risk bringing this thing back to their families. Seen it happen first hand. Many are working at home without any sacrifice in pay or otherwise. I’ve always paid my taxes, the federal govt should be looking to keep me whole just as much as any business owner.
            You cringe at the cost of guys like me, imagine for a second if there weren’t guys like me taking one for the team(society). The economy would be MUCH worse if the pandemic was much worse. Use the money for the all the pandemic costs and budget shortfalls due to the virus (unemployment benifits etc). Use the $$ that you had budgeted for the pensions to do just that.
            I am opposed to ALL the money going to “out of work” Joe six pack types who will get money the don’t need to pay back, and then point you finger at me who has been on the Front lines of this pandemic and say when this is over you’re going to have your pension cut. Sorry. No deal to that. The bailout should be spread out.

          • Posted by Tough Love on April 28, 2020 at 10:38 am

            E,

            Lol ……………. NOT provided Federal Taxpayer money to help fund you ludicrously excessive pension & benefit , is hardly ……… “shortchange first responders “.

            And quoting ………… ” Use the money for the all the pandemic costs and budget shortfalls”

            Your pension is paid for by LOCAL Taxpayers via property taxes. There won’t be any loss of property taxes. Perhaps a delay in payments which MIGHT lead to short term borrowing, but ultimately the town benefits from those loans by collecting MORE in interest than the cost of borrowing.

            Quoting ……..”and say when this is over you’re going to have your pension cut. ”
            The need/justification to cut your pension has NOTHING to do with COVID-19.

          • Posted by Rex the Wonder Dog! 🐶🐶🐶🦴🦴🦴 on April 28, 2020 at 6:34 pm

            Because I know that the pension costs of the average taxpayer for police is minimal.
            More BULLSHIT from Mr Bullshit himself, EG. Right, $100K++/year pensions at age 45-50 have a “minimal” cost. STFU you moron.

  2. Posted by mrdenis on April 27, 2020 at 9:16 am

    My question is, who will bail out the Federal Govt.?….The printing press !

    Reply

  3. Posted by skip3house on April 27, 2020 at 4:12 pm

    When will practical solution of always telling workers TRUE asset %, and can only count on this % at retirement?

    Reply

  4. Posted by MJ on April 29, 2020 at 12:11 pm

    TL, I have no doubt that they have these “we are absolutely broke” conversations in private as I find it hard to believe anybody is just that plain stupid. I agree, I would love to be a fly on the wall sitting in on THAT conversation too! I just don’t understand why nobody has the “balls” to tell it like it is or are they leading up to that and will use the virus crisis as an excuse and then blame Trump 🙂

    Reply

    • Posted by Tough Love on April 29, 2020 at 5:28 pm

      Trump isn’t responsible for the virus, but he he sure has culpability in the delayed response and the additional deaths resulting from that delay.

      Reply

  5. […] Jersey’s teacher pension system is shot. Here’s a chart recently created by John Bury who notes elsewhere that if TPAF loses 15% this year, “New Jersey’s teachers’ pension system would find itself […]

    Reply

Leave a Reply to MJ Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: