Funding levels for public pensions have declined to 71.1% in 2016, according to Reuters. Many states have been having trouble funding their pensions. Here are some examples. e New Jersey public pension system faces a $253 billion crisis. NJ state officials claim that pensions are underfunded but WNYC in New York analyzed data under rules from the Government Accounting Standards Board and found that pensions are underfunded by $168 billion and there is a shortfall for medical benefits of $85 billion.
There are 760,000 current and retired public workers in NJ. However, due to a recent pension lottery bill signed by Governor Chris Christie, money from the lottery proceeds is considered an asset for pensions. The state of Connecticut is not faring much better. The state has $50 billion in unfunded pension liabilities. The State of New York has $100.6 billion in unfunded retiree healthcare and has $17.75 billion in unfunded pensions.
The Kentucky public pension system is $40 billion short. Kentucky Governor Matt Bevin says the money will run out in 3-5 years. In October he proposed legislation to keep the pension system afloat. Thousands of Kentuckians rallied in opposition. One part of the proposal transfers these public employees from pension plans to 401(K)-type plans. It also cuts the benefits of current teachers and state workers. “Bevin’s plan breaks the promise made to state employees, lowers their wages and devalues their public service,” said Kelly Smith, a member of the Madison County chapter of Kentuckians for the Commonwealth. “A pension is a promise.”
The pension bill would allow current teachers to stay under their plans until they reach 27 years of service. At that time, they would switch to the 401(K)- style plans. Teachers of 27 years or more would now have three years before they would have to switch to the 401(K) plans, while all new hires would be in that plan. A survey by Boston College’s Center for Retirement Research found that 401(K) plans are destined to fail millions of Americans because their balances are not enough to provide for a decent retirement. Jason Bailey, executive director of the Kentucky Center for Economic Policy, said the bill “raises new questions and concerns.”
Mr. Bailey said under the proposed legislation 3% of their salary would go into retiree healthcare plans but they would not benefit from that program “because it will be offset by a 3% lower employer contribution to retiree healthcare.” As of press time of this newsletter, the plan has not been voted on and Governor Bevin has not called a special legislative session to consider pension reforms. Many other states are assessing their fiscal exposure to municipal obligations and projected retiree healthcare costs.