Thus warns Warren Buffett in his latest message to
investors, part of Berkshire Hathaway’s annual report. And
when the Oracle of Omaha speaks, most of the world listens. So here’s hoping
his warning of the dangers that underfunded public pensions liabilities pose to
state and local governments brings some needed public attention to this
problem.
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. Unfortunately, pension mathematics today remain a
mystery to most Americans.
The math being “a mystery to most Americans” is a major
factor that has enabled state and local politicians to underfund pensions for
years, by calculating contributions using discount rates based on overly
optimistic investment return projections.
Despite reforms in more than 40 states, many pension
funds are still in bad shape. As Benefits Pro’s Lisa Barron reports,
“”Moody’s Investor Services estimates that the liability increased 24 percent,
from $998 billion in 2011 to $1.2 trillion in 2012, the latest available data
with audited results.”
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