GOLDEN VALLEY, MInn,- State pension fund liabilities have grown further raising increased angst among those attempting to manage the pension plans and workers planning on receiving a future benefit. Dan Ament, our KARE11 Financial Advisor with Morgan Stanley joins us to discuss the pension tension.
§ Estimated Public Pension Unfunded Liabilities Approaching $1 Trillion – As of 2014 (most recent complete data available) Aggregate pension fund liabilities are estimated at $5 trillion with about $4 trillion in assets. Minnesota holds about $71 billion in liabilities, 59 billion in assets resulting in almost 82% of liabilities funded. Illinois ranks in our country with $190.2 billion in liabilities and $78.6 billion assets, resulting in about 41% of liabilities funded. 1,378,000,000,000
§ Covering The Pension Funding Gap – In addition to investment returns on pension assets, additional action may be necessary to keep pensions viable including: Freezing plan benefits for current staff, Cutting benefits for current staff (benefits cannot be reduced once earned by public employees), Cutting other programs to reduce expenses and of course … raising taxes.
§ ‘Assumed Rates of Return’ Too Optimistic? – Pension funds on average assume a 7.5% return on their investments which has been under scrutiny given the less than predictable capital market environment and outlook by some observers.
§ Corporate Pension Plans Become Even More Scarce – In the early 1980s, about 60% of private sector workers were covered by a defined benefit pension plan. That number is now about 4%. Approximately 14% of companies offer a combination of both pension and defined contribution plans for their employees. As of 2015, there were about $1.7 trillion in projected liabilities of corporate DB plans and approximately $1.4 trillion in assets. Funding 81-82% of projections.
Wake Up Call ….. Future Retirees Will Depend More Heavily on Their Savings – It is estimated that current retirees rely on pension plan benefits for about 25% of their § retirement income while current workers (future retirees) could expect on average only 11% of retirement income from pension benefits. Prioritize saving and utilize your company retirement plan if available. Always strive to contribute at least enough to qualify for any company matching contributions (free money). Source: Roger Ibbotson Research An estimated 35% of American’s over the age of 65 rely almost entirely on Social Security payments to cover retirement expenses.
SOURCES, RESOURCES & EXCERPTS
States face pension fund cap approaching $1 trillion http://www.cnbc.com/2016/08/25/state-pension-fund-gap-to-top-1-trillion.html
The State Pension Funding Gap http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014
MarketWatch.com - http://www.marketwatch.com/story/why-your-states-public-pension-plan-is-in-a-much-bigger-hole-than-you-already-fear-2016-08-16