Falling stocks squeezing pension funds
With stocks falling last week to 2013 levels, it's a good time to count what this is costing taxpayers. We're all in the markets - even if we don't have retirement plans - through our massive communal investment in public-worker pension funds.
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With stocks falling last week to 2013 levels, it's a good time to count what this is costing taxpayers.
We're all in the markets - even if we don't have retirement plans - through our massive communal investment in public-worker pension funds.
Philadelphia lost 3.06 percent on its pension investments in calendar-year 2015, city records show. Neighboring Montgomery County's plan squeezed out a profit of just 0.29 percent.
The city's 2015 earnings were dragged down by money-losing investments in junk bonds, hedge funds, foreign stocks, and real estate. (Its corporate buyout funds did better.)
Montgomery County stuck mostly to plain-vanilla indexed stock and bond funds from Malvern-based Vanguard Group.
But the bottom line is not so different: Both city and county fell far behind their target returns of more than 7 percent a year.
Since Philadelphia is already paying about $600 million a year - one-sixth of the city budget - to keep its deeply underfunded pension system from evaporating, weak returns keep city pension subsidies high for years to come. Montgomery County says its smaller plan is in better shape.
At the giant Pennsylvania state workers' (SERS) and public school (PSERS) pension plans, which face multibillion-dollar long-term deficits, profits are expected to fall short, too, when they are presented to the General Assembly in next month's budget hearings.
State squeeze
New taxpayer funding for the pension systems will consume $1.8 billion, or 6 percent, of the state budget this year.
That's up from 1.5 percent in 2010, and heading to 10 percent by 2019, according to a new report by Moody's Investors Service analyst Thomas Aaron and managing director Timothy Blake. That money has to be squeezed from other programs.
State and school pensions here are relatively generous. Can we afford this?
Together, SERS and PSERS are now $54 billion in the red, up from $12 billion 10 years ago, thanks to Gov. Tom Ridge's 2001 pension-giveaway perennial underfunding, and Gov. Ed Rendell's 2005 reform limiting how fast taxpayer subsidies could rise to meet the resulting gap between pensions and the investments to pay them with.
Senate Bill 1082, now pending in Harrisburg, would extend limits on pension funding (but not limits on pensions) for two more years, gambling that returns will magically leap higher to bail us out by then.
Moody's reminds us that the state constitution and past Supreme Court decisions restrict Pennsylvania from cutting promised public-worker benefits. It can squeeze new hires, which may keep the deficits from growing but doesn't pay them down.
The size of the current deficits "makes it more difficult for the plan to make up for any year of poor investment performance," even if investment markets recover, the report adds.
New pensions are stuck in a political traffic jam. The General Assembly doesn't want pension cuts. Gov. Christie won't boost funding in New Jersey - that's why it has the second-worst credit rating of the 50 states, costing taxpayers millions in extra borrowing expenses. (Illinois' is the worst.)
Pennsylvania has the third-worst credit rating. If our leaders prove as helpless as New Jersey's, we'll owe more and more, then head toward bankruptcy.
215-854-5194@PhillyJoeD