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Government pensions losing value

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Steve Chiotakis: The economic fallout is causing falling government pension values.
A recent study by Northern Trust found that state and local pensions lost more than 9 percent of their value in the first three months of this year.

It’s something a lot of government entities are keeping an eye on this morning. And so’s Marketplace’s Steve Henn, who joins us now from Washington. Steve, how bad is it?

Steve Henn: Well, you know, obviously that depends on the individual plan and how its investments are doing. But generally speaking across the board, things are pretty bad. Some experts are saying the average state or local pension plan is just 50 percent funded right now. That means that those plans have just half the money they need to meet all their future pension obligations. Most state governments say they’re doing a little bit better than that, but all things considered, the total sort of government pension shortfall is approaching a trillion dollars.

Chiotakis: So with all this trouble, Steve, are these pension funds guaranteed?

Henn: State and local pension plans aren’t guaranteed. Private plans are guaranteed by a federal insurance program, but government plans are not. So if the stock market doesn’t recover and these pension plans investments don’t recover in the next few years, state and local governments are going to have to start kicking in a lot of extra money to cover their pension obligations.

Chiotakis: Hey, what about these private pensions? Are they doing any better?

Henn: Well, not really — they’ve been hit by the same stock market plunge that got the public pension plans. And they’re also struggling with a relatively new law that forces them to catch up if they’re underfunded pretty quickly in just a few years. So some of the bigger pension plans are facing required contributions this year of $10 million, or maybe in some cases even $100 million. Jim Klein at the American Benefits Council says that’s putting a tremendous strain on these businesses:

Jim Klein: This has a lot of negative implications, both for the economy and of course for the individual companies and the workers and the retirees themselves.

Now, those big payments suck money away from other investments these companies could be making. It’s also making it harder for firms to borrow from banks. And in some cases, these big pension obligations could push some firms toward bankruptcy.

Chiotakis: Mmm. All right, Marketplace’s Steve Henn joining us from Washington. Steve, thank you.

Henn: Sure thing.

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