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Corporate and state pension funds face shortfalls, reports say

July 17, 2012|By Marc Lifsher
  • Public pension funds, which include the California State Teachers' Retirement System, whose headquarters in West Sacramento is shown here, are underfunded by $1 trillion to $3 trillion, depending on who's making the estimate, according to a report issued Tuesday. face funding shortfalls.
Public pension funds, which include the California State Teachers'… (CalSTRS photo )

SACRAMENTO -- Corporate and public pension funds across the country are seriously underfunded, threatening the retirement security of workers and straining the already tapped finances of state and local governments, according to a pair of independent studies.

A report released by the S&P Dow Jones Indices on Tuesday spotlighted record high shortfalls in corporate funds needed to pay for pensions and related post-employment benefits. Companies were underfunded by an estimated $578 billion, meaning they had only 70.5% of the money needed to meet retirement obligations, the report said.

The looming shortfall and the shift to 401(k)-type plans could keep many aging baby boomers from retiring, said Howard Silverblatt, a senior S&P Dow Jones Indices analyst and the report's author.

"The American dream of a golden retirement for baby boomers is quickly dissipating," Silverblatt said. "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."

The cost of retirement is turning out to be out of reach for older workers and growing more expensive for younger ones, who have to save more money for the future. But it's becoming less of a burden for employers, the report said.

"Despite the underfunding level, both pensions and OPEB (other post-employment benefits) have, in aggregate, become a manageable expense as cash levels remain at near record highs and cash-flows at an all-time high," Silverblatt said.

Meanwhile, a separate pension-related report, also issued Tuesday, warned that public pension funds are underfunded by $1 trillion to $3 trillion, depending on who's making the estimate. The states also are short about $1 trillion in money needed to meet promises to pay for healthcare for government retirees.

California pensions collectively now face a $136-billion unfunded liability, the report said, citing data from the National Assn. of State Retirement Administrators.

The study by the State Budget Crisis Task Force, chaired by former Federal Reserve Bank Chairman Paul Volcker and former New York Lt. Gov. Richard Ravitch, looked at a variety pressures, including pensions, on the governments of six large states -- California, Illinois, New Jersey, New York, Texas and Virginia.

"The ability of the states to meet their obligations to public employees to creditors and most critically to the education and well being of their citizens is threatened," the report said.

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