NCPA - National Center for Policy Analysis

Taxpayers Bailing Out Public Pension Plans

August 5, 2003

State taxpayers are spending billions of dollars to prop up public pension plans hit hard by stock-market losses which are squeezing state budgets at a time when tax collections are growing slowly.

States will contribute $9.6 billion to the nation's 12 biggest state pension plans this year, a USA Today survey found. That's a 35 percent increase in the past two years, but it is still billions of dollars less than what is needed to fund retirement benefits guaranteed to public employees.

The 123 public pension funds that operate statewide, covering both state and local workers, have $180 billion less in assets than they need to cover their long-term benefit obligations, reports Wilshire Associates, an investment adviser in Santa Monica, Calif. That amount is almost twice the size of California's state budget.

Among the actions cash-strapped states are taking:

  • California plans to borrow to make a required $2.2 billion contribution to its Public Employees Retirement System, the nation's largest.
  • Facing a $9 billion budget deficit, California is also withholding a $500 million payment to a separate retirement system for teachers (that fund has sued to get the money).
  • New Jersey, which hasn't contributed to its pension fund since 1996, will spread a $750 million contribution over five years, from 2004 through 2008.
  • Indiana abandoned an effort to repair its troubled teacher retirement system; instead, it raided the plan for $215 million to help balance the state budget.

The stock-market drop shrank pension assets 6 percent in 2002, while liabilities grew 10 percent, Wilshire says. Forty-two percent of pension assets are invested in stocks, the firm says.

Source: Dennis Cauchon, "State pensions face loss of billions," USA TODAY, August 4, 2003.

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