Word: pension
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Some public-employee pension plans are well managed and adequately funded. Most are not. A study of 64 state pension systems by Wilshire Associates, an investment advisory company, found that 54 of them were underfunded by a total of $175.4 billion. The situation is even worse at the municipal level. San Diego, which is on the brink of bankruptcy, is in the hole for $1.4 billion in pensions owed but not covered...
...could this happen? Politicians neglected to put money into pension plans, made poor investments, handed out extraordinarily generous retirement packages and gave special treatment to their fellow politicians. As San Diego city attorney Mike Aguirre put it, "What has happened is that the pension plan has somewhat become a personal-benefit slush fund for council members and senior officials." Not only did high-ranking San Diego officials give themselves preferential treatment for their pensions, they also distributed outsize benefits to city workers. A department director with 39 years of service collects $148,000 a year for life; an assistant port...
...Diego's excesses have attracted attention, but the city is hardly alone. The California Public Employees' Retirement System, better known as CalPERS, handed out a pension check last year for $272,200 to a retired university professor. A former water-district general manager collected $206,300. CalPERS, by the way, invests in vulture funds formed by Wilbur Ross, the New York billionaire who specializes in buying bankrupt companies, slashing costs and then selling the firms for an oversize profit. Among the costs pared: pensions. In short, a public-employee pension fund makes money from the killing of private pensions...
Across the U.S., retirement plans in big cities and small ones are underwater. In Philadelphia, the city's three big pension funds were short $2.6 billion at the end of 2003. The police plan had enough assets to cover only 59% of promised retirement checks. That was after the city had sold $1.2 billion in pension-obligation bonds in 1999, the equivalent of paying your mortgage with a credit card. At the other end of the state, Pittsburgh was in even worse shape. In 2003, the police pension plan had enough assets to cover just 33% of promised retirement...
...everywhere, the worst is yet to come: health-care obligations. A 2004 study by Workplace Economics Inc. found all 50 state-government employers offered health-care benefits for retirees under age 65. Many who work for state or local governments may retire in their 40s and collect a pension as well as receive subsidized health care. Although future pension costs are well known because contributions and estimates of potential liabilities must be accounted for, such is not the case with health care. Governmental entities pay the bills out of current revenue. As is the case with everyone else's, those...