There are a couple of reasons the pension funds that pay
retired teachers, police, elected officials, and other public servants have
become more expensive for taxpayers - eating up $1 of every $6 in
Philadelphia's city budget, for example.
It's easy to blame the exotic, sometimes politically
connected, investments in unprofitable projects and secretive far-off funds that
the pensions' trustees - many of them political appointments - have too often
approved.
But it's probably more costly that politicians years ago
fattened pension benefits but didn't set aside enough money to pay for them
along the way. And they still don't.
Especially in New Jersey and Pennsylvania. Moody's
Investors Service says in a new report New Jersey kicked in just 28 cents for
every dollar needed to balance spending liabilities with income in 2013.
That's the lowest contribution any state made toward the
"actuarially determined" target for a pension system to keep up with
expenses that aren't covered by investment profits or workers' pension
contributions, according to Moody's.
Years of underpayment mean the assets set aside to pay
current and future New Jersey retirees now trail the estimated costs by $42
billion, according to a report prepared for Gov. Christie's Treasury Department
in September.
The shortfall is double what it was in 2007; it has grown
worse by $6 billion over the last two years, despite the bull market in U.S.
stocks.
Pennsylvania, whose pension assets are also many billions
below liabilities, spent just 42 cents for every dollar it needed to keep its
own pension deficit in check in 2013, Moody's reported.
Only New Jersey and Virginia were stingier. By contrast,
more than two-thirds of the states put in at least 90 cents for every dollar
needed to keep up with all the checks flying out the door. They pay now so they
don't have to pay a lot more later.
It's easier to focus on investments. Pennsylvania Auditor
General Eugene DePasquale went to Norristown last week to praise Montgomery
County's new approach.
Montco last year streamlined its investments by firing
high-fee "alternative" hedge and buyout fund managers and
"active" stock-pickers, in favor of cheaper Vanguard and SEI index
funds.
At first glance, Montgomery County's approach looks
pretty efficient: The county says its low-fee investments returned 16.2 percent
after expenses.
The Pennsylvania State Employees' Retirement System, by
contrast, with its vast portfolio of buyout, commodity, real estate, and hedge
funds, and hundreds of millions in fees to private managers, managed a return
of only 15.6 percent. The larger Public School Employees' Retirement System
returned 14.9 percent.
But it's early to declare victory. A look at county
records shows Montco's pension assets aren't actually all that different from
the state's. Montco has about 35 percent of its assets in publicly traded U.S.
and foreign stocks; Pennsylvania has 36 percent.
The county is still divesting its buyout and hedge funds,
which may yet do better than stocks in a bad year - or at least lose less, as they
did in the 2008 market collapse.
Look a little deeper, and it turns out Montgomery County
isn't doing better than Pennsylvania at making up the payments needed to keep
its pensions solvent for the long term.
The county plans to contribute $3.5 million to the fund
in 2015. That's better than the zero the county spent in five years under its
previous Republican majority.
But it's still just about one-third of the $10 million
that its actuaries say Montco would have to pay yearly, and to keep paying, if
it doesn't want its plan to eventually become as underfunded as Pennsylvania's
or New Jersey's.
Source: Philly.com
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