Roseville, CA — Recent studies revealed that California’s funds for public pensions are dangerously insufficiently funded that the state will be unable to fulfill retirement liabilities and obligations.
S & P Dow Jones Indices released a report stating that in 2011 that the funds for retirement pensions and related benefits are insufficiently funded by $578 billion. California’s reserved retirement funds can only cover 70.5% of the required money to cover the retirement liabilities.
The report added that reserves need not be 100% complete all the time since people retire at different ages and that there are different levels of benefits given to retiring employees, even return on investments vary from year to year but to just cover 70% of the obligation puts it in a compromising level. Companies are moving more into the 401(k)-type plans where the investment level is controlled by employees preventing aging workers from retiring according to Howard Silverblatt, a senior S & P Down Jones Indices analyst.
He further added, “Plans have been reduced and the burden shifted with future retirees needing to save more for their retirement. For many baby boomers it may already be too late to safely build up assets, outside of working longer or living more frugally in retirement.” Despite the incoming cash flow to the companies are at an all time high, companies are paying less to pension funds.
Meanwhile, the National State Budget Crisis Task force released their own report warning that the pension funds in the United States are underfunded in the range of $1 trillion to $3 trillion.
CalPERS (CAlifornia Public Employees’ Retirement System) revealed that their earnings through investments only rose by 1 percent during the 2011-2012 fiscal year. The original projection was to earn 7.5 percent for it to cover the expenses to pay pension liabilities.
Governor Jerry Brown had been posting on his online ad campaign for the new sales and income tax measures that the bond rating for California is now positive when in fact California is in the lowest position among 50 states when it comes to bond ratings because of unfunded pension liabilities.
In an effort to fix the problem with the pension fund system, Governor Jerry Brown is proposing a 12-Point Pension Reform Plan wherein workers will be moved to a hybrid system that will be a combination of benefits and a 401(k) type of plan.
The governor’s proposal was received with both thumbs down because adversaries of the proposal were finding loopholes in the proposed mandate and a lot of critics were seriously doubting that the plan will be able to solve the financial woes of the state’s public pension funds. But the State Legislature will try to hear and analyze the proposal in August to check if it can be implemented.
The rising costs of pension have been the main factor on why cities like San Bernardino and Stockton have opted to file for bankruptcy. In other cities like San Diego and San Jose voters approved by ballot measures that will reduce pension benefits for government employees. An overhaul in the pension programs could be the only solution in the end.