Pension Deficits Get Renewed Scrutiny Post-Detroit Filing
23 July 2013, by William Selway and Darrell Preston (bloomberg)


Excerpt:

The bankruptcy of Detroit, which may cut retirement benefits of 30,000 current and former city workers, is causing investors to scrutinize billion-dollar shortfalls in government pensions in other parts of the country.

Chicago, Philadelphia, New York, Phoenix and Jacksonville, Florida, are among large cities that had 60% or less of what they need in their retirement systems to cover promised benefits, according to data compiled by Bloomberg.

At least 29 public plans in 16 states are less than two-thirds funded, according to Boston College’s Center for Retirement Research.

The Wall Street credit crisis that peaked in 2008 sent stocks tumbling and cut the value of pension assets, while most plans count on annual investment gains of about 8%.

The losses are forcing governments to find ways to cut benefits and pump more money into their retirement systems, leading to disputes between unions and political leaders.

Detroit “brings that concern to the forefront again,” said Matt Dalton, who helps manage $1.6 billion of munis at Belle Haven Investments Inc. in White Plains, New York.

Pension obligations are among “the most stressful situation for the state and cities.”

Concern that localities aren’t doing enough to ensure pensions and related benefits are funded has led munis to weaken compared with Treasuries, said David Litvack, head of tax-exempt fixed income research at New York-based U.S. Trust, a unit of Bank of America Corp.

Yields on 10-year AAA munis were 113.6% of those on similar-maturity Treasuries yesterday, up from 97.6% a month earlier.

The higher the percentage, the cheaper munis are relative to federal debt.