Question

Look up current estimates for the unfunded liabilities of public pensions in California. What factors might contribute to the growth of these pensions? What solutions can you come up with? Graph the estimated growth in unfunded liabilities for up to a 30 year period.

Answer 1

Current estimates of unfunded liabilities :-

The current estimate of unfunded liabilities for the California public employees retirement system and the California State teachers' retirement system are $ 138. 9 billion and $ 10 7.3 billion respectively amounting to the total gap of 246.2 billion at the current year.

Factors contributing to the growth of these pensions :-

The major factors that contribute to the growth of these pensions are as follows:-

1) The long term investment Returns that have become significantly lower than historic averages then expected has led to this increased gap as the low average of returns have been unable to make up the growing pension shortfall.

2) To support a reasonable level of income in retirement there should be a 10 to 15% salary saving  , however individual saving rates are lower which has led to the increase cost of retirement benefits as individuals completely dependent on these pensions .

3) power for government employee labour unions are controlling the lobby elected officials to increase the value of their member pensions.

4) the unfunded liability associated with retiree health and Dental benefits to state workers key factor for these drawing costs.

Solutions :-

1) Increasing paycheck deductions and employer contributions when help to support the unfunded liabilities.

2) making a new supported legislation to reduce pension benefit for new employees.

3).increasing the retirement age.

30 year estimate :-

The annual growth gap of of unfunded liabilities is growing at a rate of 5% per annum . It is estimated that these unfunded liabilities which was 241 billion in 2014 will grow up to 30 7.5 8 billion in 2020 ,50 1.2to billion in 2038 ,816.1 1 million in 2040 and will reach to a huge amount of 137 trillion in 2050. .The five year gap estimate of the above unfunded liabilities is represented in the graph given below:-

Suples dods 2030 2035 2ous 2650 200 600 800 1000 laoo 400