Hidden Pension Fiasco May Foment Another $1 Trillion Bailout

From Bloomberg.com

The Chicago Transit Authority retirement plan had a $1.5 billion hole in its stash of assets in 2007. At the height of a four-year bull market, it didn’t have enough cash on hand to pay its retirees through 2013, meaning it was underfunded to the tune of 62 percent.

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show.

The quick fix for pension funds becomes a future albatross for taxpayers.

As the global economic crisis deepens, public pension funds will lose more money. The solution shouldn’t be more accounting tricks, Kramer says.

“Virtually every pension system has suffered losses in excess of 20 percent since they created the last set of artificial numbers,” he says.

The best step forward would be for states to negotiate benefits down, increase pension contributions and reduce the expected rate of return, Texas pension oversight board member Rowe says.

Public pension funds have to stop pushing the costs of retirement benefits for current workers into the future, actuary Gold says.

“You’re putting a bigger burden on your children,” he says. “It amounts to a transfer from tomorrow’s taxpayers to today’s employees.”