Saturday, June 22, 2024
Hawai'i Free Press

Current Articles | Archives

Tuesday, November 18, 2014
State Retirement Funds Play Tricks on Retirees, Taxpayers
By Selected News Articles @ 1:22 PM :: 5147 Views :: Hawaii State Government, Labor

State Retirement Funds Play Tricks on Retirees, Taxpayers

by Dannie Mahoney,, November 14, 2014

Awareness of the problem of underfunded public pensions is increasing among the public, as states seek to balance their budgets without reneging on prior agreements with workers, but a less publicized liability problem is also becoming an issue. All too often, states’ retirement health benefits programs are over-promising and under-funded.

State governments, in the aggregate, have set aside four cents for each dollar of promised health care benefits. In addition to this concerning trend, some states have started using an accounting trick to hide this debt from the balance sheets—effectively sweeping the debt “under the rug” and out of sight.

Historically speaking, public retirement health care programs have incurred more debt than public pension programs’ debt—a trend which has reversed in recent years.

Papering over the Problem

Unfortunately, some of the improvements in healthcare programs’ finances are false. For example, Alaska, Hawaii, and Michigan have employed gimmicks to give the appearance of fiscal improvements in their entitlement programs.

Most states maintain a zero balance in their retirement health fund to cover expenses. As there is no money in the fund, the state can “low-ball” its rate of return on debt owed, assuming a pessimistic 4 percent rate of investment return.

When money is eventually placed into the health fund, this trick allows state governments to claim that the fund has been “pre-funded”—making the fund appear much healthier than it may be in reality, as a second, more optimistic rate of return is assumed.

By triggering overly optimistic funding scenarios through the manipulation of fund balances, states engineer perceptions that their retirement healthcare fund reserves are filling up faster than they are in reality.

Generally speaking, state pension funds assume 8 percent returns on pension investments—a wild over-assumption. Studies by the Pew Charitable Trusts found state entitlement funds’ investments had seen a 3.9 percent average return over the past decade.

The average state has a total pension and retirement health care debt of over 22 billion dollars, but over 80 percent of that debt—almost 19 billion dollars—is hidden from citizens and state legislators, in due to accounting gimmicks.

Fixing the Structure

Using these accounting “tricks” understates governments’ unfunded liabilities by billions of dollars.  However, not all states are playing tricks on their taxpayers.

In Kentucky, the actual value of healthcare and pension claims was significantly lower than expected, allowing the state to revise its expectations and lower its debt load.

Other states have enacted structural reforms to their systems, which improved their fiscal outlooks. In Ohio, increasing the age of retirement for employees has served to decrease the estimated amount of money required to fund retirees’ retirement healthcare.

Citizens will ultimately be responsible for the real value of the debt, no matter what the estimated rate of return. Unless other states follow the lead of Kentucky or Ohio by making real reforms to pension structures, future taxpayers will be forced to make up the difference if the fund does not have enough money to pay benefits owed to retirees.


Dannie Mahoney ( ) is Media Relations Manager for Truth in Accounting.


TEXT "follow HawaiiFreePress" to 40404

Register to Vote


Aloha Pregnancy Care Center


Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii


Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together


Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii


OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii