Jul 13, 2012 11:10 PM GMT
Another one of those things that are anticipated to get worse before they get better...
A new estimate from Moody’s Investor Services triples national public pension debt from $766 million to $2.2 trillion, mainly because the major Wall Street bond-rating firm uses a lower forecast of pension fund investment earnings urged by critics.
In a reporting overhaul proposed last week to give investors a better way to compare pension funding, Moody’s uses an annual earnings forecast based on corporate bonds, 5.5 percent, much lower than the 7.5 to 8.25 percent forecast by pension funds.
Whether pension funds, which often expect to get two-thirds of their revenue from investments, can hit their earnings targets is at the center of the debate over whether public pensions are “sustainable” or will overwhelm state and local government budgets.
Sweeping cost-cutting pension reforms, which face lengthy legal challenges from unions, were approved by voters last month in San Jose and San Diego, where retirement costs are 20 percent or more of the city general fund and projected to continue growing.
In addition to a “lost decade” of low investment earnings, public pensions also are burdened by generous benefits. CalPERS famously said a trendsetting pension increase for state workers, SB 400 in 1999, would be paid for by earnings not taxpayers.