Video source: Pennsylvania Senate GOP
My colleague Felix Salmon recently dove into the subject of public pensions and the controversy about National Public Radio accepting funding from pension reform zealot John Arnold. It’s too bad that NPR and its affiliate WNYT were not more transparent about their connection to Arnold. There is a lack of understanding about the condition of public pension systems and how many are in dire financial condition. For example, Salmon wrote:
None of this will be easy: the whole reason why pension obligations started ballooning in the first place was that local governments didn’t have the money to hand out pay raises. So the unions will push back against these ideas: they like any system which makes it easier for them to accrue valuable benefits at negligible up-front cost to the government. But if you want to guarantee vocal opposition which is almost impossible to overcome, then your best way of doing that is to combine or replace these kind of reforms with an attempt to renege on governments’ existing pension obligations.
State and local governments from coast to coast are working to achieve a soft “renege” on existing pension obligations and retiree health benefits owed to 12.9 million active plan participants and 7.8 million retirees. Public unions almost everywhere are lobbying and litigating to preserve their pension benefits. In many cases it’s simply a matter of not having enough cash to pay these obligations at the contractual or legislated levels while also supporting government services. Peter Hayes, Managing Director at Blackrock, wrote:
For states and municipalities, providers of public pension plans, the challenge is balancing near-term budgetary and operating requirements with the long-term liability of funding pension and retiree healthcare benefits. The balancing act was complicated by the financial crisis and ‘Great Recession.’ Not only had it become difficult to arrive at workable budgets, but the pension burden loomed larger as market losses caused pension asset pools to shrink, bringing funded ratios to unhealthy lows.
Public pensions have been straining for four years to make up the massive losses they sustained in the 2008 financial crisis. Pension analysis firm Milliman laid out the aggregate funding versus liabilities for the 100 largest public pension funds: