Summary
- Public pension plans are vastly underfunded and imperil state and local budgets over the long-term.
- High credit ratings and optimistic actuarial assumptions mask the full extent of the looming crises.
- Low yields on long-term municipal bonds reflect hunger for yield and obliviousness to underlying risks.
With 30-Year muni bonds yielding a paltry 3.39% on average (according toBloomberg), investors seem to be assuming both that inflation will remain historically low over that holding period and public pension costs will not imperil state and municipal budgets. In fact, the average muni yield of 3.39% was equivalent to the 30-year treasury yield as of 5/23/2014 despite the fact that the federal government has powerful options available to it to avert default (i.e. seigniorage). Even when factoring in munis’ favorable tax treatment, the effective 30-year muni-Treasury spread is small.
Famed investor Warren Buffett weighed in on public pensions in his 2013 shareholder letter:
“Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them….During the next decade, you will read a lot of news – bad news – about public pension plans.”
While there has been some public discussion about the looming public pension crisis, most of the conversation has been driven either by special interest groups that sought to deny pensioners the benefits they were promised or public sector unions advocating for their members. The reports produced by the state plans, themselves, use an accounting gimmick (overestimating future investment returns) to understate the amount of the unfunded liability. Using data from data.gov and the Boston College Center for Retirement Research, I estimate that there was at least a $1.1+ TRILLION cumulative unfunded liability in state and local plans, for which data is available, as of the 2010 plan year end (usually June 30, 2010). That represents more than half the entire aggregate annual budgets of all fifty US states. Detailed aggregate, state-by-state, and plan-by-plan data is presented at the bottom of the article.
Surprisingly, aggregate 2012 state-level data shows that most states underperformed all of the relevant benchmark indexes for their plan year periods. 2002-2010 plan-level data shows that not a single plan (out of the 120 analyzed) attained its assumed rate of return over that 9 year period; most were short by a large margin. All but one of the plans showed a funding shortfall as of year-end 2010, using my methodology (that does not give funds credit for returns assumptions that have proven to be wildly optimistic), and, in aggregate, plans had only about two-thirds of the assets required to be fully funded.
At a high level, the implication for muni-bond holders is clear. Many of the states with very high levels of unfunded liabilities sport high credit ratings. While most of the state plans’ actuarial reports assume a 7.5%-8% future rate of return on investments, the 2012 data shows that most pension plans underperformed both the Barclays US Aggregate Bond Index and major stock indexes over the 2012 fiscal year (July 2011 – June 2012)–and posted nowhere near their assumed rates of return. Estimating the individual plans’ annual rate of return between the 2001 fiscal year end and the 2010 fiscal year end (the most recent time period for which the BC data is available for many of the plans) shows that not a single plan (out of 120 for which data was available) achieved its assumed rate of annual return over that period; most underperformed by a considerable margin. While higher market returns in 2011-2013 may have closed some of that gap, the extent to which anticipated returns were overestimated for the 9 year period analyzed is very large.
Individual investors tend to have exposure to municipal bonds by either owning the bonds directly or through a mutual fund. In addition, there are a number of uninsured long-term or high yield muni-bond ETFs:
SPDR Nuveen Barclays Capital Muni Bond (TFI)
Market Vectors AMT-Free Long Municipal Index ETF (MLN)
SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB)
Market Vectors High-Yield Municipal Bond Index ETF (HYD)
However, taking a bearish position on the muni market is a challenging exercise. Long term puts do not seem to be available for any of the above-listed ETFs. While there is a Markit muni CDS (credit-default-swap) index (MCDX), it does not currently present a trading opportunity for most individual investors. Normal short positions (i.e. in the above-listed ETFs) are inherently risky, because of the unlimited downside exposure, and are not really suitable for most individual investors.
Analysis
The 2012 plan year, for most states, runs from July 2011 – June 2012. Over that period, stock and bond indexes posted returns from 3.14% to 7.48%:
|
Rate of Benchmark returns for June 2011 – June 2012 |
Closing Price 30-Jun-11 |
Closing Price 30-Jun-12 |
% Change |
Source |
|||
|
NASDAQ |
2,773.52 |
2,935.05 |
5.82% |
||||
|
S&P500 |
1,320.64 |
1,362.16 |
3.14% |
||||
|
Dow Jones |
12,414.34 |
12,880.09 |
3.75% |
||||
|
Barclays US Aggregate Bond Index |
7.48% |
||||||
|
* Barclays index calculated as product of monthly reported (1+RoR) rates of return over the holding period |
|||||||
Surprisingly, most of the state pensions underperformed every single one of these indexes and Arkansas, Hawaii, and New Jersey even posted negative returns for the 2012 plan year. Below is the estimated (approximate) 2012 fiscal year annual return for the aggregate of each state’s (non-local) plans (as reported by Data.gov), calculated as the value of the investment returns divided by the ending plan balance less the net outflows for the year less the posted returns–and contrasted with the benchmark indexes. The number of plans that underperformed every single one of the indexes is staggering.
|
Est Rate of |
Indexes |
|
|
State |
Return in 2012 |
Exceeded |
|
Alabama |
18.04% |
4* |
|
Alaska |
1.11% |
0 |
|
Arizona |
1.23% |
0 |
|
Arkansas |
-0.42% |
0 |
|
California |
3.26% |
1 |
|
Colorado |
2.15% |
0 |
|
Connecticut |
3.52% |
1 |
|
Delaware |
4.72% |
2 |
|
Florida |
5.00% |
2 |
|
Georgia |
1.97% |
0 |
|
Hawaii |
-0.18% |
0 |
|
Idaho |
1.55% |
0 |
|
Illinois |
0.83% |
0 |
|
Indiana |
1.02% |
0 |
|
Iowa |
3.48% |
1 |
|
Kansas |
0.96% |
0 |
|
Kentucky |
1.43% |
0 |
|
Louisiana |
0.02% |
0 |
|
Maine |
0.72% |
0 |
|
Maryland |
0.92% |
0 |
|
Massachusetts |
-0.26% |
0 |
|
Michigan |
12.18% |
4* |
|
Minnesota |
3.09% |
0 |
|
Mississippi |
0.51% |
0 |
|
Missouri |
3.41% |
1 |
|
Montana |
16.35% |
4 |
|
Nebraska |
1.04% |
0 |
|
Nevada |
3.14% |
0 |
|
New Hampshire |
2.29% |
0 |
|
New Jersey |
-1.34% |
0 |
|
New Mexico |
0.35% |
0 |
|
New York |
4.61% |
2 |
|
North Carolina |
7.61% |
4 |
|
North Dakota |
9.13% |
4 |
|
Ohio |
1.30% |
0 |
|
Oklahoma |
1.37% |
0 |
|
Oregon |
1.22% |
0 |
|
Pennsylvania |
2.86% |
0 |
|
Rhode Island |
1.72% |
0 |
|
South Carolina |
0.68% |
0 |
|
South Dakota |
1.81% |
0 |
|
Tennessee |
5.34% |
2 |
|
Texas |
8.11% |
4* |
|
Utah |
2.65% |
0 |
|
Vermont |
19.53% |
4 |
|
Virginia |
1.76% |
0 |
|
Washington |
1.70% |
0 |
|
West Virginia |
1.61% |
0 |
|
Wisconsin |
1.04% |
0 |
|
Wyoming |
-0.70% |
0 |
* Indicates plan has fiscal year that differs from that used to calculate the index
The Boston College data set has annual data points for 126 individual state and local pension plans between 2010 and 2011. However, there are many missing data points for 2011 and a number of artifacts/outliers that appear to be problematic. Removing those from the data set yields 2001-2002 through 2009-2010 performance data for 120 plans. Analyzing this data (estimating the annual rate of return in year X as the investment return for year X divided by the ending market value of investments in year X-1), alongside each plan’s assumed rate of return demonstrates that, over that time period, every single one of the plans dramatically overestimated their annual rate of return over the time period in question.
|
Recent Estimated Returns |
Estimated Gross % |
Estimated rate of |
2010 Annual |
|
Relative to Returns Assumption |
Return (2002-2010) |
return (2002-2010) |
Returns Assumption |
|
Alabama ERS |
-3.58% |
-0.40% |
8.00% |
|
Alabama Teachers |
0.13% |
0.01% |
8.00% |
|
Alaska PERS |
-9.55% |
-1.11% |
8.00% |
|
Alaska Teachers |
-5.49% |
-0.63% |
8.00% |
|
Arizona Public Safety Personnel |
-3.67% |
-0.42% |
8.25% |
|
Arizona SRS |
12.05% |
1.27% |
8.00% |
|
Arkansas PERS |
11.11% |
1.18% |
8.00% |
|
Arkansas Teachers |
25.98% |
2.60% |
8.00% |
|
California PERF |
15.57% |
1.62% |
7.75% |
|
California Teachers |
7.45% |
0.80% |
7.75% |
|
Chicago Teachers |
9.64% |
1.03% |
8.00% |
|
City of Austin ERS |
41.27% |
3.91% |
7.75% |
|
Colorado Municipal |
39.85% |
3.80% |
8.00% |
|
Colorado School |
31.68% |
3.10% |
8.00% |
|
Colorado State |
28.22% |
2.80% |
8.00% |
|
Connecticut SERS |
-10.58% |
-1.23% |
8.25% |
|
Connecticut Teachers |
45.74% |
4.27% |
8.50% |
|
Contra Costa County |
28.42% |
2.82% |
7.75% |
|
DC Police & Fire |
21.56% |
2.19% |
7.00% |
|
DC Teachers |
22.07% |
2.24% |
7.00% |
|
Delaware State Employees |
18.48% |
1.90% |
7.50% |
|
Denver Employees |
27.03% |
2.69% |
8.00% |
|
Denver Schools |
31.36% |
3.08% |
8.00% |
|
Duluth Teachers |
-6.36% |
-0.73% |
8.50% |
|
Fairfax County Schools |
19.17% |
1.97% |
7.50% |
|
Florida RS |
11.33% |
1.20% |
7.75% |
|
Georgia ERS |
9.56% |
1.02% |
7.50% |
|
Georgia Teachers |
4.57% |
0.50% |
7.50% |
|
Hawaii ERS |
10.39% |
1.10% |
8.00% |
|
Houston Firefighters |
39.48% |
3.77% |
8.50% |
|
Idaho PERS |
19.07% |
1.96% |
7.25% |
|
Illinois Municipal |
46.38% |
4.32% |
7.50% |
|
Illinois SERS |
5.32% |
0.58% |
7.75% |
|
Illinois Teachers |
16.47% |
1.71% |
8.50% |
|
Illinois Universities |
20.43% |
2.09% |
7.75% |
|
Indiana PERF |
40.51% |
3.85% |
7.00% |
|
Indiana Teachers |
7.97% |
0.86% |
7.00% |
|
Iowa PERS |
23.84% |
2.40% |
7.50% |
|
Kansas PERS |
17.36% |
1.79% |
8.00% |
|
Kentucky County |
9.22% |
0.98% |
7.75% |
|
Kentucky ERS |
10.71% |
1.14% |
7.75% |
|
Kentucky Teachers |
-1.35% |
-0.15% |
8.00% |
|
LA County ERS |
-13.83% |
-1.64% |
5.00% |
|
Louisiana SERS |
20.42% |
2.09% |
8.25% |
|
Louisiana Teachers |
8.22% |
0.88% |
8.25% |
|
Maine Local |
39.03% |
3.73% |
7.25% |
|
Maine State and Teacher |
22.25% |
2.26% |
7.25% |
|
Maryland PERS |
14.08% |
1.47% |
7.75% |
|
Maryland Teachers |
14.89% |
1.55% |
7.75% |
|
Michigan Municipal |
43.92% |
4.13% |
8.00% |
|
Michigan Public Schools |
40.87% |
3.88% |
8.00% |
|
Minneapolis ERF |
19.58% |
2.01% |
6.00% |
|
Minnesota PERF |
-16.47% |
-1.98% |
8.50% |
|
Minnesota State Employees |
42.14% |
3.98% |
8.50% |
|
Minnesota Teachers |
-4.94% |
-0.56% |
8.50% |
|
Mississippi PERS |
3.47% |
0.38% |
8.00% |
|
Missouri DOT and Highway Patrol |
31.10% |
3.05% |
8.00% |
|
Missouri Local |
25.22% |
2.53% |
7.25% |
|
Missouri PEERS |
13.35% |
1.40% |
8.00% |
|
Missouri State Employees |
43.95% |
4.13% |
8.50% |
|
Missouri Teachers |
13.03% |
1.37% |
8.00% |
|
Montana PERS |
-3.96% |
-0.45% |
7.75% |
|
Montana Teachers |
-5.37% |
-0.61% |
7.75% |
|
Nebraska Schools |
16.74% |
1.73% |
8.00% |
|
Nevada Regular Employees |
7.13% |
0.77% |
8.00% |
|
New Hampshire Retirement System |
8.43% |
0.90% |
7.75% |
|
New Jersey PERS |
6.49% |
0.70% |
8.25% |
|
New Jersey Police & Fire |
6.87% |
0.74% |
8.25% |
|
New Jersey Teachers |
6.10% |
0.66% |
8.25% |
|
New Mexico PERF |
5.55% |
0.60% |
7.75% |
|
New Mexico Teachers |
14.77% |
1.54% |
7.75% |
|
New York City ERS |
4.76% |
0.52% |
8.00% |
|
New York City Teachers |
4.50% |
0.49% |
8.00% |
|
New York State Teachers |
10.69% |
1.14% |
8.00% |
|
North Carolina Local Government |
57.96% |
5.21% |
7.25% |
|
North Carolina Teachers and State Employees |
55.07% |
5.00% |
7.25% |
|
North Dakota PERS |
16.95% |
1.76% |
8.00% |
|
North Dakota Teachers |
9.97% |
1.06% |
8.00% |
|
NY State & Local ERS |
23.87% |
2.41% |
8.00% |
|
NY State & Local Police & Fire |
23.98% |
2.42% |
8.00% |
|
Ohio PERS |
26.43% |
2.64% |
8.00% |
|
Ohio Police & Fire |
30.85% |
3.03% |
8.25% |
|
Ohio School Employees |
7.59% |
0.82% |
8.00% |
|
Ohio Teachers |
12.21% |
1.29% |
8.00% |
|
Oklahoma PERS |
18.53% |
1.91% |
7.50% |
|
Oklahoma Teachers |
20.88% |
2.13% |
8.00% |
|
Oregon PERS |
27.69% |
2.75% |
8.00% |
|
Pennsylvania School Employees |
18.23% |
1.88% |
7.75% |
|
Pennsylvania State ERS |
57.45% |
5.17% |
8.00% |
|
Phoenix ERS |
5.95% |
0.64% |
8.00% |
|
Rhode Island ERS |
14.12% |
1.48% |
7.50% |
|
Rhode Island Municipal |
14.14% |
1.48% |
7.50% |
|
San Diego County |
32.88% |
3.21% |
8.00% |
|
San Francisco City & County |
20.41% |
2.09% |
7.66% |
|
South Carolina Police |
4.50% |
0.49% |
8.00% |
|
South Carolina RS |
6.63% |
0.72% |
8.00% |
|
South Dakota PERS |
19.90% |
2.04% |
7.75% |
|
St. Louis School Employees |
34.37% |
3.34% |
8.00% |
|
St. Paul Teachers |
37.72% |
3.62% |
8.50% |
|
Texas County & District |
44.55% |
4.18% |
8.00% |
|
Texas ERS |
8.49% |
0.91% |
8.00% |
|
Texas LECOS |
8.39% |
0.90% |
8.00% |
|
Texas Municipal |
21.60% |
2.20% |
7.00% |
|
Texas Teachers |
18.69% |
1.92% |
8.00% |
|
University of California |
2.86% |
0.31% |
7.50% |
|
Utah Noncontributory |
37.43% |
3.60% |
7.75% |
|
Vermont State Employees |
19.09% |
1.96% |
6.25% |
|
Vermont Teachers |
20.55% |
2.10% |
6.25% |
|
Virginia Retirement System |
24.73% |
2.49% |
7.00% |
|
Washington LEOFF Plan 1 |
23.80% |
2.40% |
8.00% |
|
Washington LEOFF Plan 2 |
25.03% |
2.51% |
8.00% |
|
Washington PERS 1 |
23.17% |
2.34% |
8.00% |
|
Washington PERS 2/3 |
24.28% |
2.44% |
8.00% |
|
Washington School Employees Plan 2/3 |
24.07% |
2.43% |
8.00% |
|
Washington Teachers Plan 1 |
23.33% |
2.36% |
8.00% |
|
Washington Teachers Plan 2/3 |
24.19% |
2.44% |
8.00% |
|
West Virginia PERS |
37.88% |
3.63% |
7.50% |
|
West Virginia Teachers |
39.35% |
3.76% |
7.50% |
|
Wisconsin Retirement System |
48.69% |
4.51% |
7.20% |
|
Wyoming Public Employees |
23.12% |
2.34% |
8.00% |
* Excludes MA (outlier w/-80%- returns in 2009)
* Excludes TN (missing actuarial data from 2010)
* Excludes plans with missing data
Michigan SERS
Nevada Police Officer and Firefighter
Note that the plans calculate their unfunded liabilities assuming the above (high) rate of returns on their investments and an actuarial methodology called asset smoothing. As a result, they are almost universally arguing that $1 of assets in their plan today actually offsets more than $1 of NPV worth of plan liabilities. To calculate my estimate of their unfunded liabilities, I assume that $1 of assets at their period end market value offsets $1 of NPV of liabilities (no asset smoothing). Below is a plan by plan account of the estimated unfunded liabilities according to my calculations versus each plan’s.
|
Actuarial vs. Market Value of Assets |
Actuarial Assets |
Market Value of |
Actuarial Liabilities |
Liabilities Less |
% Shortfall |
|
Market Value of Assets vs. Liabilities |
2010 ($1000s) |
Assets 2010 ($1000s) |
2010 ($1000s) |
Assets (at Market) |
|
|
Alabama ERS |
$ 9,739,331 |
$ 8,176,732 |
$ 14,284,119 |
$ 6,107,387 |
42.76% |
|
Alabama Teachers |
$ 20,132,779 |
$ 17,037,673 |
$ 28,299,523 |
$ 11,261,850 |
39.80% |
|
Alaska PERS |
$ 6,469,832 |
$ 5,391,527 |
$ 10,371,672 |
$ 4,980,145 |
48.02% |
|
Alaska Teachers |
$ 3,259,868 |
$ 2,716,557 |
$ 6,006,981 |
$ 3,290,424 |
54.78% |
|
Arizona Public Safety Personnel |
$ 5,591,304 |
$ 4,585,863 |
$ 8,255,185 |
$ 3,669,322 |
44.45% |
|
Arizona SRS |
$ 27,572,000 |
$ 22,146,960 |
$ 36,073,000 |
$ 13,926,040 |
38.61% |
|
Arkansas PERS |
$ 5,409,000 |
$ 4,728,500 |
$ 7,304,000 |
$ 2,575,500 |
35.26% |
|
Arkansas Teachers |
$ 10,845,000 |
$ 9,883,574 |
$ 14,702,000 |
$ 4,818,426 |
32.77% |
|
California PERF |
$ 257,070,000 |
$ 201,616,074 |
$ 308,343,000 |
$ 106,726,926 |
34.61% |
|
California Teachers |
$ 140,291,000 |
$ 129,768,107 |
$ 196,315,000 |
$ 66,546,893 |
33.90% |
|
Chicago Teachers |
$ 10,917,417 |
$ 8,947,470 |
$ 16,319,744 |
$ 7,372,273 |
45.17% |
|
City of Austin ERS |
$ 1,711,600 |
$ 1,711,577 |
$ 2,460,700 |
$ 749,123 |
30.44% |
|
Colorado Municipal |
$ 2,926,045 |
$ 2,883,504 |
$ 4,005,566 |
$ 1,122,062 |
28.01% |
|
Colorado School |
$ 20,321,736 |
$ 19,870,277 |
$ 31,339,754 |
$ 11,469,477 |
36.60% |
|
Colorado State |
$ 12,791,946 |
$ 12,487,105 |
$ 20,356,176 |
$ 7,869,071 |
38.66% |
|
Connecticut SERS |
$ 9,349,605 |
$ 7,791,337 |
$ 21,054,197 |
$ 13,262,860 |
62.99% |
|
Connecticut Teachers |
$ 14,430,200 |
$ 12,284,330 |
$ 23,495,900 |
$ 11,211,570 |
47.72% |
|
Contra Costa County |
$ 5,341,822 |
$ 5,027,157 |
$ 6,654,037 |
$ 1,626,880 |
24.45% |
|
DC Police & Fire |
$ 5,137,409 |
$ 2,925,742 |
$ 5,137,409 |
$ 2,211,667 |
43.05% |
|
DC Teachers |
$ 1,671,184 |
$ 1,317,470 |
$ 1,671,184 |
$ 353,714 |
21.17% |
|
Delaware State Employees |
$ 6,808,957 |
$ 5,909,159 |
$ 7,096,326 |
$ 1,187,167 |
16.73% |
|
Denver Employees |
$ 1,942,870 |
$ 1,725,680 |
$ 2,284,760 |
$ 559,080 |
24.47% |
|
Denver Schools |
$ 2,961,720 |
$ 2,940,926 |
$ 3,332,814 |
$ 391,888 |
11.76% |
|
Duluth Teachers |
$ 255,309 |
$ 192,403 |
$ 312,650 |
$ 120,247 |
38.46% |
|
Fairfax County Schools |
$ 1,822,603 |
$ 1,607,663 |
$ 2,384,061 |
$ 776,398 |
32.57% |
|
Florida RS |
$ 120,929,666 |
$ 107,179,990 |
$ 139,652,377 |
$ 32,472,387 |
23.25% |
|
Georgia ERS |
$ 13,046,193 |
$ 10,956,296 |
$ 16,295,352 |
$ 5,339,056 |
32.76% |
|
Georgia Teachers |
$ 54,529,416 |
$ 45,925,549 |
$ 63,592,037 |
$ 17,666,488 |
27.78% |
|
Hawaii ERS |
$ 11,345,600 |
$ 9,821,633 |
$ 18,483,700 |
$ 8,662,067 |
46.86% |
|
Houston Firefighters |
$ 3,116,848 |
$ 2,721,637 |
$ 3,337,473 |
$ 615,836 |
18.45% |
|
Idaho PERS |
$ 9,632,100 |
$ 9,599,892 |
$ 12,187,900 |
$ 2,588,008 |
21.23% |
|
Illinois Municipal |
$ 24,251,137 |
$ 25,141,889 |
$ 29,129,228 |
$ 3,987,339 |
13.69% |
|
Illinois SERS |
$ 10,961,540 |
$ 9,201,831 |
$ 29,309,464 |
$ 20,107,634 |
68.60% |
|
Illinois Teachers |
$ 37,439,092 |
$ 31,323,784 |
$ 77,293,198 |
$ 45,969,414 |
59.47% |
|
Illinois Universities |
$ 13,966,643 |
$ 12,121,542 |
$ 30,120,427 |
$ 17,998,885 |
59.76% |
|
Indiana PERF |
$ 12,357,199 |
$ 10,581,319 |
$ 14,506,052 |
$ 3,924,733 |
27.06% |
|
Indiana Teachers |
$ 8,804,964 |
$ 8,140,769 |
$ 19,896,625 |
$ 11,755,856 |
59.08% |
|
Iowa PERS |
$ 21,537,459 |
$ 19,878,080 |
$ 26,468,420 |
$ 6,590,340 |
24.90% |
|
Kansas PERS |
$ 13,589,658 |
$ 11,352,784 |
$ 21,853,783 |
$ 10,500,999 |
48.05% |
|
Kentucky County |
$ 7,296,322 |
$ 6,327,382 |
$ 11,131,174 |
$ 4,803,792 |
43.16% |
|
Kentucky ERS |
$ 4,712,945 |
$ 3,948,108 |
$ 11,692,945 |
$ 7,744,837 |
66.24% |
|
Kentucky Teachers |
$ 14,851,330 |
$ 12,456,619 |
$ 24,344,316 |
$ 11,887,697 |
48.83% |
|
LA County ERS |
$ 38,839,392 |
$ 33,433,888 |
$ 46,646,838 |
$ 13,212,950 |
28.33% |
|
Louisiana SERS |
$ 8,512,403 |
$ 8,064,543 |
$ 14,764,015 |
$ 6,699,472 |
45.38% |
|
Louisiana Teachers |
$ 12,868,484 |
$ 12,021,431 |
$ 23,674,842 |
$ 11,653,411 |
49.22% |
|
Maine Local |
$ 2,045,337 |
$ 1,781,153 |
$ 2,122,833 |
$ 341,680 |
16.10% |
|
Maine State and Teacher |
$ 8,369,763 |
$ 7,288,320 |
$ 12,676,367 |
$ 5,388,047 |
42.50% |
|
Maryland PERS |
$ 11,937,944 |
$ 10,983,303 |
$ 19,009,788 |
$ 8,026,485 |
42.22% |
|
Maryland Teachers |
$ 20,908,150 |
$ 19,256,510 |
$ 31,963,421 |
$ 12,706,911 |
39.75% |
|
Michigan Municipal |
$ 6,945,423 |
$ 5,973,039 |
$ 9,317,222 |
$ 3,344,183 |
35.89% |
|
Michigan Public Schools |
$ 43,294,000 |
$ 35,855,478 |
$ 60,927,000 |
$ 25,071,522 |
41.15% |
|
Minneapolis ERF |
$ 844,033 |
$ 844,033 |
$ 1,286,151 |
$ 442,118 |
34.38% |
|
Minnesota PERF |
$ 13,126,993 |
$ 11,338,582 |
$ 17,180,956 |
$ 5,842,374 |
34.00% |
|
Minnesota State Employees |
$ 8,960,391 |
$ 7,692,531 |
$ 10,264,071 |
$ 2,571,540 |
25.05% |
|
Minnesota Teachers |
$ 17,323,146 |
$ 14,939,540 |
$ 22,081,634 |
$ 7,142,094 |
32.34% |
|
Mississippi PERS |
$ 20,143,426 |
$ 16,788,214 |
$ 31,399,988 |
$ 14,611,774 |
46.53% |
|
Missouri DOT and Highway Patrol |
$ 1,375,845 |
$ 1,312,717 |
$ 3,258,867 |
$ 1,946,150 |
59.72% |
|
Missouri Local |
$ 3,592,226 |
$ 3,695,341 |
$ 4,432,332 |
$ 736,991 |
16.63% |
|
Missouri PEERS |
$ 2,892,411 |
$ 2,404,425 |
$ 3,658,713 |
$ 1,254,288 |
34.28% |
|
Missouri State Employees |
$ 7,923,377 |
$ 6,727,623 |
$ 9,853,155 |
$ 3,125,532 |
31.72% |
|
Missouri Teachers |
$ 28,931,331 |
$ 23,755,741 |
$ 37,233,602 |
$ 13,477,861 |
36.20% |
|
Montana PERS |
$ 3,889,890 |
$ 3,315,906 |
$ 5,241,819 |
$ 1,925,913 |
36.74% |
|
Montana Teachers |
$ 2,956,583 |
$ 2,521,446 |
$ 4,518,168 |
$ 1,996,722 |
44.19% |
|
Nebraska Schools |
$ 7,040,909 |
$ 5,940,537 |
$ 8,542,119 |
$ 2,601,582 |
30.46% |
|
Nevada Regular Employees |
$ 19,665,764 |
$ 16,604,769 |
$ 27,616,270 |
$ 11,011,501 |
39.87% |
|
New Hampshire Retirement System |
$ 5,233,838 |
$ 4,847,852 |
$ 8,953,932 |
$ 4,106,080 |
45.86% |
|
New Jersey PERS |
$ 28,734,593 |
$ 24,332,712 |
$ 41,347,836 |
$ 17,015,124 |
41.15% |
|
New Jersey Police & Fire |
$ 22,558,521 |
$ 19,844,138 |
$ 29,274,359 |
$ 9,430,222 |
32.21% |
|
New Jersey Teachers |
$ 33,265,327 |
$ 25,892,496 |
$ 49,543,348 |
$ 23,650,852 |
47.74% |
|
New Mexico PERF |
$ 12,243,713 |
$ 10,016,491 |
$ 15,601,461 |
$ 5,584,970 |
35.80% |
|
New Mexico Teachers |
$ 9,431,300 |
$ 8,232,523 |
$ 14,353,500 |
$ 6,120,977 |
42.64% |
|
New York City ERS |
$ 42,556,400 |
$ 35,383,794 |
$ 42,556,400 |
$ 7,172,606 |
16.85% |
|
New York City Teachers |
$ 31,135,400 |
$ 26,398,410 |
$ 31,135,400 |
$ 4,736,990 |
15.21% |
|
New York State Teachers |
$ 105,302,082 |
$ 76,844,937 |
$ 105,302,082 |
$ 28,457,145 |
27.02% |
|
North Carolina Local Government |
$ 18,570,514 |
$ 15,795,385 |
$ 18,646,430 |
$ 2,851,045 |
15.29% |
|
North Carolina Teachers and State Employees |
$ 57,102,198 |
$ 48,773,836 |
$ 59,876,066 |
$ 11,102,230 |
18.54% |
|
North Dakota PERS |
$ 1,621,723 |
$ 1,474,185 |
$ 2,208,386 |
$ 734,201 |
33.25% |
|
North Dakota Teachers |
$ 1,841,960 |
$ 1,437,950 |
$ 2,637,165 |
$ 1,199,215 |
45.47% |
|
NY State & Local ERS |
$ 158,159,164 |
$ 114,057,641 |
$ 158,159,164 |
$ 44,101,523 |
27.88% |
|
NY State & Local Police & Fire |
$ 28,605,772 |
$ 20,194,091 |
$ 28,605,772 |
$ 8,411,681 |
29.41% |
|
Ohio PERS |
$ 60,599,000 |
$ 63,515,006 |
$ 79,630,000 |
$ 16,114,994 |
20.24% |
|
Ohio Police & Fire |
$ 10,681,012 |
$ 10,075,500 |
$ 15,384,437 |
$ 5,308,937 |
34.51% |
|
Ohio School Employees |
$ 10,787,000 |
$ 8,953,363 |
$ 14,855,000 |
$ 5,901,637 |
39.73% |
|
Ohio Teachers |
$ 55,946,259 |
$ 54,140,413 |
$ 94,720,669 |
$ 40,580,256 |
42.84% |
|
Oklahoma PERS |
$ 6,348,416 |
$ 5,774,379 |
$ 9,622,628 |
$ 3,848,249 |
39.99% |
|
Oklahoma Teachers |
$ 9,566,700 |
$ 8,351,966 |
$ 19,980,600 |
$ 11,628,634 |
58.20% |
|
Oregon PERS |
$ 51,583,600 |
$ 47,685,015 |
$ 59,329,500 |
$ 11,644,485 |
19.63% |
|
Pennsylvania School Employees |
$ 59,306,848 |
$ 45,598,475 |
$ 79,005,428 |
$ 33,406,953 |
42.28% |
|
Pennsylvania State ERS |
$ 29,443,945 |
$ 25,886,102 |
$ 39,179,594 |
$ 13,293,492 |
33.93% |
|
Phoenix ERS |
$ 1,868,093 |
$ 1,535,174 |
$ 2,697,288 |
$ 1,162,114 |
43.08% |
|
Rhode Island ERS |
$ 6,405,209 |
$ 5,487,924 |
$ 13,238,855 |
$ 7,750,931 |
58.55% |
|
Rhode Island Municipal |
$ 1,196,385 |
$ 1,000,481 |
$ 1,626,621 |
$ 626,140 |
38.49% |
|
San Diego County |
$ 8,433,310 |
$ 6,868,944 |
$ 9,999,161 |
$ 3,130,217 |
31.30% |
|
San Francisco City & County |
$ 16,069,058 |
$ 13,136,786 |
$ 17,643,394 |
$ 4,506,608 |
25.54% |
|
South Carolina Police |
$ 3,612,700 |
$ 2,851,474 |
$ 4,850,457 |
$ 1,998,983 |
41.21% |
|
South Carolina RS |
$ 25,400,331 |
$ 19,681,137 |
$ 38,774,029 |
$ 19,092,892 |
49.24% |
|
South Dakota PERS |
$ 7,119,875 |
$ 6,496,635 |
$ 7,393,251 |
$ 896,616 |
12.13% |
|
St. Louis School Employees |
$ 944,357 |
$ 937,594 |
$ 1,066,271 |
$ 128,677 |
12.07% |
|
St. Paul Teachers |
$ 1,001,444 |
$ 815,307 |
$ 1,471,630 |
$ 656,323 |
44.60% |
|
Texas County & District |
$ 17,808,600 |
$ 17,729,760 |
$ 19,931,200 |
$ 2,201,440 |
11.05% |
|
Texas ERS |
$ 23,628,567 |
$ 19,580,610 |
$ 27,668,876 |
$ 8,088,266 |
29.23% |
|
Texas LECOS |
$ 802,897 |
$ 668,353 |
$ 930,747 |
$ 262,394 |
28.19% |
|
Texas Municipal |
$ 16,986,000 |
$ 17,992,494 |
$ 20,481,500 |
$ 2,489,006 |
12.15% |
|
Texas Teachers |
$ 111,293,000 |
$ 95,688,405 |
$ 134,191,000 |
$ 38,502,595 |
28.69% |
|
University of California |
$ 41,195,318 |
$ 34,574,454 |
$ 47,504,309 |
$ 12,929,855 |
27.22% |
|
Utah Noncontributory |
$ 16,895,039 |
$ 15,802,205 |
$ 20,544,827 |
$ 4,742,622 |
23.08% |
|
Vermont State Employees |
$ 1,265,404 |
$ 1,169,845 |
$ 1,559,324 |
$ 389,479 |
24.98% |
|
Vermont Teachers |
$ 1,410,368 |
$ 1,305,250 |
$ 2,122,191 |
$ 816,941 |
38.50% |
|
Virginia Retirement System |
$ 52,729,000 |
$ 44,645,816 |
$ 72,801,000 |
$ 28,155,184 |
38.67% |
|
Washington LEOFF Plan 1 |
$ 5,560,900 |
$ 4,586,358 |
$ 4,393,300 |
$ (193,058) |
-4.39% |
|
Washington LEOFF Plan 2 |
$ 7,927,000 |
$ 5,081,657 |
$ 7,927,000 |
$ 2,845,343 |
35.89% |
|
Washington PERS 1 |
$ 9,293,000 |
$ 7,626,486 |
$ 12,538,100 |
$ 4,911,614 |
39.17% |
|
Washington PERS 2/3 |
$ 25,978,000 |
$ 16,368,663 |
$ 25,978,000 |
$ 9,609,337 |
36.99% |
|
Washington School Employees Plan 2/3 |
$ 3,459,000 |
$ 2,237,385 |
$ 3,459,000 |
$ 1,221,615 |
35.32% |
|
Washington Teachers Plan 1 |
$ 7,791,300 |
$ 6,404,061 |
$ 9,201,300 |
$ 2,797,239 |
30.40% |
|
Washington Teachers Plan 2/3 |
$ 9,106,000 |
$ 5,547,281 |
$ 9,106,000 |
$ 3,558,719 |
39.08% |
|
West Virginia PERS |
$ 3,974,609 |
$ 3,866,588 |
$ 5,325,830 |
$ 1,459,242 |
27.40% |
|
West Virginia Teachers |
$ 4,143,540 |
$ 4,143,540 |
$ 8,904,312 |
$ 4,760,772 |
53.47% |
|
Wisconsin Retirement System |
$ 80,626,900 |
$ 75,872,072 |
$ 80,758,800 |
$ 4,886,728 |
6.05% |
|
Wyoming Public Employees |
$ 5,799,531 |
$ 5,495,337 |
$ 6,855,643 |
$ 1,360,306 |
19.84% |
|
Total |
$2,629,875,887 |
$ 2,231,596,280 |
$ 3,375,676,773 |
$ 1,144,080,493 |
33.89% |
|
Overstatement of |
Assets |
$ 398,279,607 |
|||
|
Estimated Unfunded Obligations |
$ 1,144,080,493 |
||||
In total, my calculations show over a $1.1 trillion unfunded liability in the 120 state and local plans excluding any unfunded liabilities in additional local plans within each state for which data is unavailable (the plans excluded from the plan-level analysis: MA, TN, etc. would increase this aggregate shortfall if included). While investment returns are likely to be higher in the 2012-2014 fiscal years, closing some of this gap, it would be imprudent to assume that the strong performance of the underlying investment indexes continues at that elevated rate.
Policymakers at the state and local levels will be forced to make difficult trade-offs in the years ahead. $1.1 trillion is more than half of the aggregate total state budgets for the most recent fiscal years for whichdata is available (5/25/2014). It is a very big number, and no amount of unreasonable assumptions or whitewashing will make it go away on its own. Retirees, future retirees, taxpayers, and municipal bond holders all deserve better than the uncertain future presented by the status quo. The political cost of taking action is high but the ultimate financial cost of inaction will be far higher.
If you are holding muni bonds (either directly or indirectly) in your search for yield, you should consider the specific risks of the state or municipality, and its unfunded obligations, in the context of your investment.
NOTE: The full excel workbook containing the raw data, and my calculations, is available upon request. If you make use of any of the data in this article, please cite the following sources:
1) Lenny Grover’s article on Seeking Alpha
2) Data.gov
3) Boston College Center for Retirement Research