Sunday, August 19, 2012

Public pension funds are ticking time bomb

Public pension funds are ticking time bomb: " . . . Moody's has announced it will start evaluating public pension-funding ratios using the high-grade corporate-bond rate, currently around 5.5 percent. That could affect credit ratings, debt-service costs and put some squeeze on operating budgets. The Governmental Accounting Standards Board announced it will require the unfunded portion of public pensions be calculated using the muni-bond rate, around 3 percent to 4 percent. Moreover, unfunded pension liabilities will have to be stated on the balance sheets of state and local governments. That will also affect creditworthiness. The problem with Arizona's public-employee pensions isn't that a few people abuse them. The problem is that they are financially unsustainable and constitute an unacceptable risk to taxpayers. When Arizona politicians wake up to that reality, there are three big reforms that will be necessary: The state constitutional provision that prevents benefits from being reduced has to be repealed or substantially amended. This problem won't be solved strictly by changing the rules for new hires. The age at which public retirement systems pay out full benefits has to be synchronized with Social Security. A transition has to take place from defined-benefit programs to defined contribution programs, similar to private-sector 401(k)s. Simply put, what taxpayers owe shouldn't be a function of anyone's shot in the dark about the performance of the stock market over 30 years."

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