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Hidden Pension Fiasco May Foment Another $1 Trillion Bailout
Key Excerpts from Article on Website of Bloomberg News
Posted: March 14th, 2009
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alwTE...
Public pension funds across the U.S. are hiding the size of a crisis thats been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy. The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year. The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion. With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion. That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show. The quick fix for pension funds becomes a future albatross for taxpayers. The public gets nothing from pension bonds -- other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases. By law, states must guarantee public pension fund debts. What appears to be a riskless strategy is actually very risky, says David Zion, director of accounting research for New York-based Credit Suisse Holdings USA Inc. If the returns on the pension bond-financed assets dont exceed the cost of servicing the debt, the taxpayers bear the brunt.
Note: The risks to pension funds may require yet another huge public bailout. Where will the money come from? For lots more on the realities of the Wall Street bailout, click here.
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