Federal, State and Local Government Pension and Health Care Plans
Editor's Note- This article will be devoted to dealing with only this issue for governmental pension and health care plans. To see more on this issue as it relates to corporate America, please see our article, "Corporate Retiree's Health-Care and Pension Plans"
Because of the importance of the issue of the deficit in the Pension Benefits Guaranty Corporation and the growing numbers of companies that are walking away from their pension obligation we have started an article on "The Pension Benefits Guaranty Corporation (PBGC) and Corporate Bankruptcies".
(3/24/08)- As of last week, at least 25 states were expecting budget shortfalls for the 2009 fiscal year, according to the Center on Budget and Policy Priorities, a liberal research group in Washington that tracks state budgets. It is the largest number since 2002, when 37 states were forced to cut their budgets.
The largest of the state budget deficits is faced by California, which is looking at an estimated $14.5 billion plus deficit. The outlook is for these deficits to increase because of the combination of weak consumer spending resulting in lower sales tax revenues; weaker real estate markets resulting in lower property tax revenues coming into state treasuries; a lower stock market in which the Dow is down about 8% as of this date which in turn means lower capital gains for most individuals and the precipitous drop in earnings from companies in the financial sector of the economy.
New Hampshire, which has never had a state income tax is considering imposing one for the first time in its history. Most states are looking at cuts in their spending, with education costs in the forefront of the cutting process. Many of the services to the residents of the community will be cut back on to a greater extent.
It does not take a wise guru to recognize the fact, that just as corporate America has cut back on the health-care benefits, and retirement plan benefits of their employees, the federal, state and local governments will also be making some severe cuts in these areas also.
(3/13/08)- Corporate America has had to face up to the under-funding of companies' pension and health care plans, and whether they like it or not, the same is now true for federal, state and municipal plans.
At the request of Senators Max Baucus, Democrat of Montana, and Charles E. Grassley, Republican of Iowa, the chairman and the ranking Republican of the Senate Finance Committee, the Government Accountability Office (GAO) looked at a sample of about 70 public retirement and health care plans.
Congress has very little authority over how state and municipal governments handle their pension accounts, but in the hope or avoiding a disaster before it occurs, this matter is being looked into.
As a practical matter the actuaries who set the "assumed rate of return" for a pension plan play a key role in determining whether or not a pension plan has a realistic chance of being properly funded. One of the problems with pension fund "assumed rate of returns" is that if a higher rate is assumed, the lower the present contribution is that has to be paid into the plan. This potential conflict of interest is true whether we are looking at a corporate pension plan or a governmental pension plan.
According to the report from the GAO less than half of the states are setting aside their required yearly contribution amounts. Some of the states that have been failing to contribute what their auditors said was required to be contributed are New Jersey, Illinois, Pennsylvania and Kentucky.
In some states, including California and New York, public employees have successfully sued to force governors and state legislators to appropriate the proper amount.
Unlike pensions, which are funded in advance, health care for retired public workers is handled on a pay-as-you go basis. This methodology will lead to disasters down the road. With health care costs rising, the GAO predicted that health costs could start to snowball causing "daunting fiscal challenges."
FOR AN INFORMATIVE AND PERSONAL ARTICLE ON PRACTICAL
SUGGESTIONS WHEN SELECTING A NURSING HOME SEE OUR ARTICLE "How to Select a Nursing
Home"
By Allan Rubin
Updated March 24, 2008
http://www.therubins.com
To e-mail: hrubin12@nyc.rr.com or rubin@brainlink.com