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November 04, 2013 at 10:01 AM
It’s enough to drive a retirement planner crazy. Every day it seems the headlines blare some new public pension catastrophe. Detroit is the most recent example, but don’t forget about all those California cities mulling or filing for bankruptcy. And there’s Rhode Island and Illinois and … the list goes on and on.
How can retirees, prospective retirees or their advisors know just how much will be left of promised retirement benefits when politicians start pushing for cuts, and, for investors, which municipal bonds may be in trouble?
For starters, maybe the headlines don’t tell the whole story. In fact, according to a survey released in October, the vast majority of public pension funds are in better shape than those that are in trouble.
“It’s well known that a few cities, like Philadelphia, Chicago and New York, have serious pension funding problems,” said Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence. “But across the country most cities are in good shape.”
In fact, she said, while many have work to do to get their pension funds in good shape, 80% are doing just fine.
(Check out 20 Best & Worst States for Pension Funding on ThinkAdvisor.)
We decided to take a look at the municipalities whose pension funds eat up the most money (worst) and least money (best) as a percentage of tax revenues. Kellar’s center recently released a study of what percentage of municipal tax revenues are needed to keep public pensions funds in good shape.
We used that list to highlight 21 cities. Why 21? Because the liabilities of some cities were the same and that added up to 11 in the Best category and 10 in the Worst category. So here are the 21 Best & Worst Cities for Pension Funding:
10 WORST CITIES
10. Portland, Ore.
% of Revenue: 13
Population: 550,000
Portland’s pension funding problems are reflective of the state as a whole, which approved retirement benefits reforms expected to save $5 billion. Unions are fighting the changes in court, arguing they break a contract made with vested workers.
9. Saginaw, Mich.
% of Revenue: 13.8
Population: 56,000
Candidates for the city council mention unfunded pension liabilities as a major problem facing Saginaw. The situation in the area is bad enough that Saginaw County wants to issue bonds to cover about $64 million of its unfunded debts.
8. Stockton, Calif.
% of Revenue: 14.1
Population: 287,000
Stockton was the largest city to file for bankruptcy, in 2012, until Detroit followed suit this year. In October, Moody’s lowered the city’s credit rating from Ca to Caaa3.
7. Bakersfield, Calif.
% of Revenue: 14.5
Population: 316,000
As with many California cities, Bakersfield faces huge pension payments. Reform of the states system, CalPERS, was approved by the legislature last year but still faces court challenges.
6. Springfield, Mass.
% of Revenue: 15
Population: 150,000
A recent study found that for the third year in a row, Springfield’s pension fund was the worst funded in the state. Its unfunded liabilities were pegged at $652.7 million in 2012.
5. Reno, Nev.
% of Revenue: 15.5
Population: 215,000
Nevada’s public employee retirement system is under-funded to the tune of $11.2 billion, so it’s not a huge surprise that one of its largest cities would land in the Top 10 of worst funded pension funds.
4. Charleston, W.Va.
% of Revenue: 15.7
Population: 50,000
Facing unfunded liabilities of $274 million, the city took drastic measures this summer that it hopes will allow it to avoid bankruptcy. To allow the pension fund to grow, the city decided to pay the pensions of current retirees out of its general revenue fund.
3. Aurora, Ill.
% of Revenue: 16.4
Population: 171,000
The state and its biggest city (see No. 2 on our list) are facing major pension funding problems, but politicians, so far, have not found a way to strike a deal to fix it.
2. Chicago
% of Revenue: 17
Population: 2.8 million
