By JOHN AIDAN BYRNE
February 26, 2012 - NEW YORK POST
The ticking time bomb of public and private pension plans has a shorter fuse now, given the paltry returns garnered in the markets.
In an eye-opening report, Credit Suisse says that of the 341 companies in the Standard & Poor’s 500 index with defined-benefit pension plans, 97 percent are underfunded. In the US, unfunded pension obligations increased to $2.9 trillion.
This stunning bank report comes in the wake of New York Gov. Andrew Cuomo’s plan to shake up the state’s heavily subsidized public pension system by shifting state workers into less expensive 401(k) and other defined-contribution plans.
A study this month by the New York nonprofit Citizens Budget Commission confirms the trend: Public pensions are choking local taxpayers to financial death. Under the law, these taxpayers pony up hugely to keep public pensions fully funded. And that’s in the midst of periodic stock-market storms.
Defined-contribution plans, of which 401(k)s are a part, have really held their own during the most recent downturn.
According to a report by the Employee Benefit Research Institute, the total average return on a 401(k) between 2003 and 2010 was almost 85 percent. This record was achieved even though the plans lost 30 percent of their value in 2008.
EBRI’s data shows that the 2010 average 401(k) plan had a return of 32 percent, which was the highest return over the period, but all years, with the exception of 2008, had double-digit gains.
In the 10 years through June 2010, New York’s state pension systems earned an annualized return of less than 4 percent — or 28 percent over the EBRI’s time frame, according to data from Bloomberg News.
By one calculation, New York City pension contributions are costing each resident $1,000 more today than they did 12 years ago.
In 2009, the most recent year for which there is comparative data, employer and employee contributions to local public pension funds in the US totaled $27.6 billion.
The amount contributed to New York City’s pension plans was $8.3 billion, nearly one-third of the national total. Of that total, fully $7.2 billion, or 87 percent, came from local taxpayers, and just over $1 billion, or 13 percent, came from employee contributions.
New York’s state-run pension system made 89 percent of the total contributions and workers just 11 percent — a ratio of 8-to-1, compared with the national average of 2-to-1 for other states. That’s the second-highest rate among the 10 largest state-run pension systems and the sixth-highest nationally.
While states rely on taxpayers to make up pension shortfalls, corporations such as General Motors and Bank of America announced last week that they are moving toward 401(k)s for salaried workers.
“The world has moved over to 401(k)s,” John Challenger of Challenger, Gray & Christmas said about the GM move.
“It’s been happening for the last 10 or 20 years. There are companies that are still providing traditional pensions, but they are in the distinct minority and on their way to changing themselves,” he added.