Gov. Jerry Brown outlines proposals to roll back public employee pension benefits during a news conference at the Capitol in October. (Rich Pedroncelli, Associated Press / July 17, 2012)
By Marc Lifsher, Los Angeles Times
July 17, 2012, 7:00 p.m.
SACRAMENTO — Corporate and public pension funds across the country are seriously underfunded, threatening the retirement security of workers and straining the financial health of state and local governments, according to a pair of independent studies.
In 2011, company pensions and related benefits were underfunded by an estimated $578 billion, meaning they only had 70.5% of the money needed to meet retirement obligations, according to a report by S&P Dow Jones Indices.
Funds generally don’t need to have all the money needed pay future pensions because returns on investments vary over the years and people retire at different ages and with different levels of benefits, experts said. But a funding level in the 70% zone is considered dangerously low.
The looming shortfall, and the move by corporations to 401(k)-type plans in which the level of investment is controlled by employees, could keep many aging baby boomers from retiring, said Howard Silverblatt, a senior S&P Dow Jones Indices analyst and the report’s author.
“The American dream of a golden retirement for baby boomers is quickly dissipating,” Silverblatt said. “Plans have been reduced and the burden shifted with future retirees needing to save more for their retirement.
“For many baby boomers it may already be too late to safely build up assets, outside of working longer or living more frugally in retirement.”
While the cost of retirement is out of reach for many older workers and growing more expensive for younger ones, it’s becoming less of a burden for employers, according to the report issued Tuesday.
Employers are paying less into pension funds despite the fact that company cash levels remain near record highs and cash flows are at an all-time high,” Silverblatt said.
Meanwhile in the public sector, a separate pension-related report by the national State Budget Crisis Task Force warned that public pension funds in the U.S. are underfunded by $1 trillion to $3 trillion, depending on who’s making the estimate.
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