In 2003, a whistle-blower forced San Diego to reveal that it had been shortchanging its city workers’ pension fund for years, setting off a wave of lawsuits, investigations and eventually criminal indictments … Retirees are still being paid, but a portion of their benefits is in doubt because of continuing legal challenges. And the city, which is scheduled to receive a report today on the causes of its current predicament, still has to figure out how to close the $1.4 billion shortfall in its pension fund. Maybe someone should be paying closer attention in New Jersey. And in Illinois. Not to mention Colorado and several other states and local governments. Across the nation, a number of states, counties and municipalities have engaged in many of the same maneuvers with their pension funds that San Diego did, but without the crippling scandal – at least not yet. It is hard to know the extent of the problems, because there is no central regulator to gather data on public plans. Nor is the accounting for government pension plans uniform, so comparing one with another can be unreliable. But by one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds. And that may well understate the gap: Barclays Global Investments has calculated that if America’s state pension plans were required to use the same methods as corporations, the total value of the benefits they have promised would grow 22 percent, to $2.5 trillion. Only $1.7 trillion has been set aside to pay those benefits.
Andrew Samwick called this New Jersey approach “clever” as he wondered why the Enron folks didn’t think of it:
Still, officials in Trenton have been shortchanging New Jersey’s pension fund for years, much as San Diego did. From 1998 to 2005, the state overrode its actuary’s instructions to put a total of $652 million into the fund for state employees. Instead, it provided a little less than $1 million. Funds for judges, teachers, police officers and other workers got less, too. To make up the missing money, New Jersey officials tried an approach similar to one used in San Diego. They said they would capture the “excess” gains they expected the pension funds’ investments to make and use them as contributions.
I’m wondering when the Cato Institute will take something like this approach to George Bush’s Social Security deformers. When the National Association of State Retirement Administrators (NASRA) crowd suggested it was not realistic to expect pension funds to be fully funded, Dr. Samwick sensibly remarked:
I’m guessing there’s no financial literacy requirement to be a spokesperson for NASRA. Wishing won’t make this problem go away. At some point, state and local taxes go up or benefits to public employees or retirees get cut.
Dean Baker applauds the reporting of Mary Williams Walsh.