US Government Employee pension system near collapse

Posted by APP.Com via Peter Grandich

Share on Facebook

Tweet on Twitter

Did you think the potential collapse of the public employee pension system is so far in the future you don’t need to be concerned? Or, if you’re not in the system that it doesn’t affect you? A new report from George Mason University says it’s closer than you think.

The university’s Mercatus Center studied public employee systems across the country and chose to use New Jersey’s as an example of how bad things can be.

“New Jersey’s defined pension systems are underfunded by more than $170 billion, an amount equivalent to 44 percent of gross state product and 328 percent of the state’s explicit government debt,” said authors Eileen Norcross and Andrew Biggs.

The report says the state has five defined benefit pension plans that cover 770,000 public workers, and more than a quarter million retirees depend on $6 billion per year in benefits.

Officials maintain pension plans are underfunded by $44.7 billion when the return on investment is 8.25 percent. The study used calculations consistent with private-sector accounting methods and, when they are applied, the state’s underfunded benefit obligations go from $44.7 billion to $173.9 billion.

“It is estimated if state pension assets average a return of 8 percent, New Jersey will run out of funds to meet its pension obligations in 2019. If asset returns are lower than 8 percent, they will run out of funds sooner,” the report says.

How much sooner? Under certain assumptions the well could go dry as early as 2013.

It comes as no surprise we got into this pickle because legislators overpromised benefits to state workers while shirking responsibility on the state’s contribution to the pension plans. Gov. Jon Corzine was fond of saying he had put more money in the pension plans than was contributed in the prior 15 years combined. Even so, it wasn’t enough.

Some states have moved their employees to a defined contribution plan, like a 401(k). Michigan put new hires in them starting in 1997. Alaska moved to such a plan in 2003. Florida, Nebraska and Ohio offer hybrid plans. New Jersey has two such plans, one for the state’s universities and colleges and another for elected and appointed officials and current participants in the Public Employees Retirement System (PERS) and Teachers’ Pension Annuity Fund (TPAF).

….read page two of US State pension system near collapse