Sunsetting Public Pension Funds
The WSJ and this summary article suggest few public pension funds will meet their long term obligations. Most are actuarially unsound. From a policy point of view, we should sunset these funds and move public workers to defined contribution plans. Many municipalities are already looking at a tsunami of bankruptcies in the present market downturn, pension liabilities will only worsen the matter. Would be great to have some pension actuaries chime in.
"In the case of Pasadena and Steve Mermell’s experience, funding the local pension plan it once offered to its police and firefighters has been a decades long struggle.?In 1999, in an effort to keep pace with its inflation-adjusted benefits, Pasadena borrowed $102 million through municipal bonds.?The borrowed money went towards its pension obligations.
The idea was simple enough.?The pension fund could immediately begin earning on a larger amount of money, while the bonds would be paid back gradually.
But then the stock market crashed during the dot com bust in 2001-03.?Yet the city still had to make bond payments at interest rates north of 6 percent.
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Pasadena then went back to the ATM in 2004 with another pension-obligation bond.?Several years later, in 2007-09, the stock market crashed again.?Still, the city’s pension legacy costs remain.?As noted by the?Wall Street Journal:
“The local police and fire pension plan has been closed for nearly 50 years.?Pension recipients have dwindled to fewer than 180.?But the city still owes about $135 million in bond debt on the plan.?Payments on it are expected to be about $6 million in 2022."
Following Pasadena’s closure of its local pension plan, public pensions are managed by CalPERS.?To add insult, the city’s annual contributions to CalPERS have doubled since 2015, to about $70 million last year.?That’s more than the city spends on transportation."
https://www.wsj.com/articles/pension-funds-plunge-into-riskier-betsjust-as-markets-are-struggling-11656274270 , https://economicprism.com/how-public-pensions-turn-cities-into-unlivable-hellholes/