California Pension Plans are in Big Trouble
Which is the bigger story: That an independent study just discovered California’s public pension systems are short half a trillion dollars…or that no one cares?
A study commissioned by Arnold Schwarzenegger announced yesterday that just the three largest CA pension funds, which will “benefit” over 2.6 million public employees, are underfunded by $425 billion. CalPERS, the public employee fund, makes up $239 billion of that unfunded debt by itself – way, way more than the fund’s own projection in 2008, which suggested CalPERS was short just $38 billion. (Turns out the market doesn’t return 7.75% every year for eternity.)
The researchers, mostly from Stanford, say California will need to inject $360 billion into its public benefit systems – right now – in order to have an 80% chance of meeting 80% of obligations over the next 16 years.
This is the same state, mind you, that can’t close its $20 billion budget gap.
And yet… who cares? This story made a brief appearance on the Drudge Report yesterday. Then Schwarzenegger made his little speech. There were a few gasps. Then…poof. Gone. Onto bigger and better things, like Dancing With the Stars…and the final season of Lost.
No doubt, California employees will head back to work today and keep on contributing to a fund that is all but guaranteed to collapse. But it won’t implode today…it won’t mess with their monthly payments…so why worry?
Pension plans at GM and Chrysler are also underwater, said a separate report yesterday. Just to meet minimum funding levels, GM will have to inject $12 billion into its fund within the next five years. Chrysler will owe $2.6 billion. In the grand scheme of things, that’s not a lot. But since neither company is actually making money, it’s a big deal. Just this morning, GM announced a $4.3 billion loss for the second half of 2009.
The federal government is still the majority owner of GM and a large shareholder of Chrysler. According to The New York Times, if the bill comes due while Uncle Sam is still in charge, the American taxpayer becomes “liable for paying benefits to hundreds of thousands of retirees.”
Heh. That’ll be a big hit.