Reality is finally intruding into the delusional world of public pensions. New actuarial rules will force public pension funds to assume a 5.5% rate of return, the same as private pensions, rather than the absurd 7.5% they’d been allowed to use. This means their projected rates of return will be much less which in turn means unfunded liabilities go much higher. The insolvency they’ve desperately been trying to hide will become much more obvious. Of course, 5.5% is still way too high in today’s low interest rate environment, but it’s a start towards financial responsibility since it stops public pensions ability to make numbers up. The new reality will be ugly for them.
California’s unfunded liabilities will nearly double to $328.6 billion. California already has the second lowest credit rating for a state, only Illinois is worse.
Meredith Whitney says California is papering over budget holes with gimmicks, like raising taxes retroactively, pushing state expenses onto local towns and cities that can’t afford them, and underfunding their pension funds. “It’s so much worse than the rosy picture that the headlines suggest.”
Detroit to renege on pensions? CA next?
In an omen for California, Detroit just was declared insolvent by Emergency Manager Kevyn Orr, who said, “We are tapped out.” Bankruptcy is expected in 30 days.
Detroit is expected to default on paying pensions and then try to get laws changed so current pension benefits will be changed.