Boulder is a Stoopid Place

Coming to a state near you – Collapse of Pension Funds Isn’t a Distant Prospect | ThinkAdvisor

The next phase of public pension reform will likely be touched off by a stock market decline that creates the real possibility of at least one state fund running out of cash within a couple of years.

The math says that tax increases and spending cuts cannot do much. For one thing, as we learned from Detroit, at a certain point high taxes and poor services force people and businesses out. The numbers are just too big in some states to come out of the budgets. For another, voters won’t stand for it. The voters in these states have refused for decades to pay the full costs of the services they were already enjoying; they’re not going to have sudden conversions to paying full costs, plus the accumulated costs from the past. State constitutions will be amended if necessary and big legal battles will be fought. I cannot see any plausible scenario in which full promised benefits are paid.

I hope that the problems of the least responsible states will shock the rest of the country into more rational reforms. Actuarial problems 25 years in the future can be solved with only moderate pain today. Cash flow problems three years in the future require chainsaws, not pens. But history does not inspire confidence that warnings will be heeded.

No kidding. In Colorado, PERA has been a slow motion train wreck for years. You can get a short history less on PERA issues from this March 2018  Denver Post article.

Lawmakers have a steep hill to climb. After years of warning signs and underfunding went ignored by policymakers, the Public Employees’ Retirement Association now owes anywhere from $32 billion to $50 billion in unfunded benefits depending on how the fund calculates its liabilities, according to its financial reports

“Something as large as $10,000 per man, woman and child in Colorado requires financial help from all sources,” Tate told reporters in a recent briefing. “I’m working hard to let my colleagues in the Senate know that the circumstance may be more dire (than they realize), and it can’t be just handled merely with some nominal benefit cuts.”

PERA’s current assumed rate of return is 7.25%. Warren Buffet pontificated on pensions fund returns in his 2007 shareholder letter, which you can read here.