Making Sen$e: How States Have Responded to the Pension Crunch

BY Paul Solman  March 1, 2011 at 12:27 PM EST

Making Sense

EDITOR’S NOTE: We received a number of responses from viewers like you regarding last week’s broadcast story, “In Tiny Rhode Island, a Massive Public Pension Crisis Looms” and the Making Sen$e web piece, “Paying For Public Pensions.” So, over the next few days, Paul will be answering some of the questions and notes we received via Twitter, e-mail and in the comments sections on our site.

See Monday’s post for Paul’s answers on the subject of taxing the rich to save public pensions.

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Question from Katie Kaufmanis: Mr. Solman’s story should reference the most recent Pew Center on the States research that includes information on the steps states have taken to make changes to their systems as a result of the Great Recession.

Paul Solman: Yes, this is very illuminating. Thanks for sharing it, Ms. Kaufmanis. I urge readers to go to the Pew link. And for those who don’t believe there’s an underfunding pension problem, I’d also recommend an earlier Pew study: “The Trillion Dollar Gap: Underfunded state retirement systems and the roads to reform.”

EDITOR’S NOTE: The Tool$ Tuesday graphics above come from a Pew report on the changes states made to their public pension systems between 2001 and 2010. You can find short descriptions of what each state has done in the last decade in the report. Do note that it was published last November so reforms being hashed out in states like Wisconsin are not included. For state-by-state details as of Feb. 23, see The National Conference of State Legislatures site.
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Question from Purgiel: Did some states borrow from their public pension funds to fund other things? Did promised funding get to the public pension fund (i.e. lottery proceeds)?

Paul Solman: In a sense, any state that didn’t fully fund its pension system borrowed from it. As the U.S. government is doing from the Social Security and Medicare trust funds, even as I write these very words.

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Question from Alden Bushnell: Given that Ohio and Wisconsin are currently making news on this topic but show as “solid performers,” it would be helpful to give detail for why those specific states’ elected officials are still so concerned about meeting their obligations.

Paul Solman: Because even they are not fully funded, and medical costs keep going up faster than anticipated. Think of Medicare.

Note: See “Paying For Public Pensions” for reference to Alden’s comment.

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Question from Chuck Buss: Your programs are always informative. Two points I wish you had made in your program about states and their pension problems:

1) Pensions are part of the compensation contract for the services rendered by the employees. Simply put, if the service was rendered for the agreed compensation then the state is contractually required to pay the employee just like a private employer would have to do.

2) The states that are paying into a pension fund do not pay into social security. But if the state does not fund a pension plan then it would have to pay the same amount into Social Security that a private employer would have to pay. So the state would continue to have the same revenue difficulty.

Paul Solman: Point 2 is quite interesting, Mr. Buss. But of course Social Security is also whoppingly underfunded, as is Medicare — the equivalent of state retirement health plans. Also, while some workers in Rhode Island (and elsewhere) did pay into their state pension plans, others didn’t — but all of us contribute 6.25 percent to Social Security.

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Comment from Randy McLain: I have been a loyal viewer of the NewsHour for well over a decade. I have always appreciated your portrayal of news events in a fair and balanced manner. However your story tonight on the unfunded pension fund liability in Rhode Island and other states has made me doubt how balanced and fair you reporting really is.

Your story about the unfunded pension fund liability was very biased towards the opinion of one elected official with an obvious political agenda. There were no facts or truthful information for viewers on what “unfunded pension liability” even is. You talked to one person on one side of the story and did no apparent research yourselves to understand what this is really about.

Our retirement system in Nevada covers local government and state government employees. Our employers and employees all pay into the system. I don’t know of any contributions that aren’t “funded.” As of 2009 the fund had $18.8 billion in assets and its annual report showed that it was financially strong and healthy. So where’s the so-called unfunded liability?

One other little item about state pensioners that you apparently don’t know is that if you pay into a government pension plan, you and your employer do not pay into the federal Social Security system, and you receive no Social Security benefits.

There’s really much more to this story than meets the eye. You really need to dig a lot deeper into this issue to find the real truths. You owe it to your viewers.

Paul Solman: Now hold on just a second, Mr. McLain. I just Googled “Nevada pension fund” and one of the first things to come up was a story from the Nevada News Bureau, which doesn’t appear especially unfair, unbalanced or anti-union. And I quote:

Assembly Speaker John Oceguera, D-Las Vegas, said … there is no question that the long-term unfunded liability of the current plan, which hit $10 billion as of June 30, needs to be paid down.

What is an “unfunded liability”? It’s simply a promise to pay some amount in the future for which you haven’t put aside enough money. Like Social Security.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions _Follow Paul on Twitter._