Thursday, July 1, 2010
States Repudiate Pensions
"Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits. ... 'We can't afford to deny reality or delay action any longer,'said Gov. Pat Quinn of Illinois, adding that his state's pension cuts, enacted in March, will save some $300 million in the first fiscal year alone. But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthorugh reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect. ... That vaunted $300 million in immediate savings? The state produced it by giving itself credit now for the much smaller checks it will send retirees many years in the future--people who must first be hired and then, for full benefits, work until age 67. By recognizing those far-off savings right away, Illinois is letting itself put less money into its pension fund now, starting with $300 million this year. ... 'We're within a few years of having some of the pension funds run out of money,' said E. Eden Martin, president of the Commerical Club of Chicago, a business group that has been warning of a 'financial implosion' for several years. 'Funding for the schools is going to be cut radically. Funding for Medicaid. As these things all mount up, there;s going to be a lot of outrage.' ... If a state pension fund ran out of money, the state would be legally bound to make good on retirees' benefits. But paying public pensions straight out of general revenue would be ruinous. In Illinois's case, it would consume about half the state's cash every year, bringing other vital state services to a standstill", my emphasis, Mary Walsh at the NYT, 20 June 2010, link:
The pensioners will not get paid all they were promised. Current services will be maintained. Who are Illinois CPAs? Price Waterhouse, the guys who audited AIG and Vampire Squid? Or some other Big 87654 firm? Anyone with eyes open saw this disaster coming decades ago.