Tuesday, January 24, 2012

The Public Pension Time Bomb!

The growing crisis of public pension fund liabilities!

Pension fund liabilities for states and municipalities is an extremely apropos topic on the day of the State of the Union Address (#SOTU) when President Obama will be doing one of the things he does best which is pandering to the unions!

This pandering will be particularly evident, obvious and clear during an election year when the Obama reelection campaign is looking to raise a record dollar amount of political contributions!

The ticking time bomb!

Over the years have you heard the stories of public employees who retire with rich benefits that need to be somehow be paid for the rest of their lives?

These pension liabilities facing towns, cities and states will exist regardless of how much their tax base shrinks, tax receipts dry-up or other expenses rise.

The federal government has the advantage of unlimited taxing power to cushion any blow created by rising expenses and when the states get strapped for cash they can reduce the amount that they pay down to the cities and towns.

But what recourse do the city's and town have?

This pension liability can choke a governmental entity forcing it to cut essential and non-essential services to try and stay solvent.

If and when that fails they may be forced to do what individuals or company's are sometimes forced to do which is to file for bankruptcy protection to get out from under the financial anvil.

This issue of public pension liabilities will not go away and in fact will only get worse over time as predicted by many analysts.

An example of a teachers pension in New York State!

Occupation: Teacher
Number of years teaching: 35
Final average salary: $80,000
Annual Pension Benefit: $52,000

Based on the formula at Calculate Your Public Pension, a private sector employee would need to accumulate about $1MM (total annuity cost) by the same age 60 to generate the same yearly income.

If you wanted to retire at 65 with 40 years in and an average salary of $90,000 then the numbers would increase to a yearly pension benefit of $67,500!

Visit Calculate Your Public Pension here to find out more and to test it for yourself.

And now when you watch the State of the Union Address listen to see if the President wants to work to solve this problem, maintain its existence or ignore it all together.

And for entertainment try and guess the first cliche that he will use in what promises to be a long drawn out monologue. Some of the choices along with their odds of winning can be found here.

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