Are Public Pensioners Safe?
Photo by John Elk via Getty Images.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Friday's comes from a reader at Next Avenue. The NewsHour has partnered with Next Avenue, a new PBS website that offers articles, blogs and other critical information for adults over 50.
Will Williams: My wife and I are retired educators, and we each get a fixed pension from the Arizona State Retirement System. When we hear terrible news about the economy, we wonder if our pension is going to be reliable for us. I would appreciate hearing your opinion.
Paul Solman: As regards Arizona, I only know what I read. As regards health care, the state looks to be in relatively good shape. In FY 2010, Arizona "had a $713 million bill for retiree health care costs," according to a Pew Foundation study, "69 percent of which was funded, well above the 8 percent national average of 2010." Indeed, Pew rated Arizona and Alaska its top two health care pension states and dubbed Arizona a "solid performer."
But when it comes to Arizona pensions themselves, Pew noted "serious concerns": "Although Arizona consistently paid, or exceeded, its full annual pension contribution from 2005 to 2010, the system was 75 percent funded in fiscal year 2010 and faced a $12 billion funding gap. Most experts agree that a fiscally sustainable system should be at least 80 percent funded."
The picture is further muddied by the fact that "Arizona lawmakers approved pension cuts in 2010 and 2011, including raising employee contributions, lowering state contributions, and limiting cost-of-living increases. But a district court judge said in 2012 that the higher contributions were unconstitutional, leaving their status in doubt." (Again, Pew.)
All of that said, you and your wife, Will, would appear to be in a lot better shape than a lot of your fellow Arizona pensioners.
"The largest system, the Arizona State Retirement System, whose members include teachers and government employees," wrote Craig Harris of the Arizona Republican online back in June, "had the highest funding level [of all Arizona pension systems] at nearly 76 percent as of June 30, 2011. That system is the healthiest because its members historically have paid the same amount into the trust as their employers, and it has not given cost-of-living raises to retirees since 2005 because there were not adequate funds."
My own prognosis for public pensioners is pessimistic. Pension funds are in general underfunded, as we've reported early, again and again. They assume unrealistically high rates of return on their assets. They refuse to, or simply cannot, raise taxes on their citizens and businesses. The only alternative is to cut benefits. And that's happening with increasing frequency all over this land.
As usual, look for a second post early this afternoon. But please don't blame us if events or technology make that impossible. Meanwhile, let it be known that this entry is cross-posted on the Rundown- NewsHour's blog of news and insight.
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