Tuesday, March 31, 2009
Public Sector Pensions
"Many state and city governments reeling from financial woes are about to get wacked again, this time by an unforseen increase in their pension bill thanks to market declines. In an effort to stave off tax increases, New Jersey lawmakers on Monday will consider a bill that would allow municipalities to defer payment of half of their annual pension bill, due April 1, for one year. Those towns, counties and schools, that opt to defer would face a higher pension bill in years to come. ... The Detroit police and fire pension plan might have to double employer contribution rates to 50% of payroll by 2011, according to the fund's outside actuary. ... 'It's going to be huge showdown' between taxpayers and public employees, said Susan Mangiero, president of Pension Governance Inc., a consulting firm in Trumbull, Conn. 'The anger is more acute today when people are feeling economic hardship.' ... "In most states, retirement benefits for public employees are guaranteed by law, so governments have little choice but to pay them in full. ... But soaring pension costs are emboldening critics of public plans. They said local governments cannot afford to pay what are often perceived as generous benefits to government employees when the 401(k) plans held by others have shrunk, and as taxpayers already are looking at higher taxes and fewer services", my emphasis, Craig Karmin at the WSJ, 16 March 2009.
Who cares about the law? If there is no more money, there is no more money. Consider the implications for muni bonds. Will muni bond interest be paid before public employee pensions? How many divisions have the muni bond holders?