10 thoughts on “Forbes post, “3 Things That Caught My Eye In The Pew Report On Public Pensions””
“This is, to me, the most startling graph in this report: benefits paid out by public pension plans came in at roughly $100 billion in 2000. In 2016, they had tripled, to about the $300 billion mark.”
Please don’t keep us in suspense. I read through the Pew report before I read your article. I did not notice that three fold increase. Now I can’t forget. I wonder why they didn’t explain it?
I can’t even find data to verify the increase, let alone the reasons. Can you or Pew expand on this?
Looking at a subset* of teacher plans over the same period, total benefits paid in 2000 were about $18.9 billion, increasing to $56.4 billion in 2016 – very similar to the overall increase pointed out in the Pew report. It appears that the largest part of the increase was simply due to the maturing of the plans – total beneficiaries went from 915k in 2000 to 1,637k in 2015. That is a 79% increase in the number of beneficiaries. If the benefits kept up with inflation (many of these systems had a COLA in place that would have kept up with inflation, and new benefits would be expected to increase at the same rate as wages), or roughly 40%, the combined impact of increased beneficiaries and inflation would be to boost benefits by 1.79 * 1.40 = 2.51. The actual increase was roughly 3.0; many systems expanded benefits around 1998-2002, which could well explain the remaining difference.
*(the subset included Texas Teachers, CALSTRS, Pennsylvania PSERS, NY State Teachers, Ohio Teachers, Michigan PSERS, Illinois Teachers, Kentucky Teachers, and Chicago Teachers).
Yes, in some cases the increase was only partially retroactive – in those cases, you would only see the impact come gradually as new retirees began receiving benefits. Combined with different systems changing benefits at different times and in different ways, it may result in total benefits across all pensions that don’t have a noticeable jump from one year to the next.
Do you have an opinion as to how this relates to the Wirepoints article…
“Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report”
Mar.29, 2018
John Klingner
“Stephen, our comparison of the growth in total pension benefits owed to household incomes does not imply the average pension benefit of a state workers has grown at the rate of 8.8 percent a year.”
The pension increases in Illinois look like the same dynamic PEW describes in nationwide benefits. Perhaps Jane can explain better than John Klingner
I haven’t read that article in full, so I can’t comment on it specifically. However, if I understand the comment you quote, it is getting at the same thing we are discussing here – there are many factors that contribute to the overall increase in the benefits paid by pension systems. The increase in the number of beneficiaries, which should have been nearly completely predictable even 20 years ago and largely was not the result of any changes to benefits or eligibility, is a very large one. The growth of the average size of the benefit per beneficiary, perhaps even over and above the inflation, is another contributing factor, one which likely was heavily influenced by benefit/eligibility changes in some systems. Allocating ‘responsibility’ for the overall increase in total benefits paid between these two (and any other contributing factors) is more complicated, though it should be possible to get a rough idea by looking at the characteristics of the beneficiary populations at the two points in time as well as the benefit structure in place.
Before you put too much credence in the Pew report, see John Bury’s analysis, the first point of which is, the Pew report uses CAFR data supplied by state sponsors. It is unreliable but in unknown degrees among the states.
(Side note, 1) I didn’t use quotation marks because I edited out “anxious to low-ball contributions” from his statement.
(Side note, 2) John is an excellent source of all things pension… Public or Private. We could call him johntheactuary, because burytheactuary would be just… wrong.
“This is, to me, the most startling graph in this report: benefits paid out by public pension plans came in at roughly $100 billion in 2000. In 2016, they had tripled, to about the $300 billion mark.”
Please don’t keep us in suspense. I read through the Pew report before I read your article. I did not notice that three fold increase. Now I can’t forget. I wonder why they didn’t explain it?
I can’t even find data to verify the increase, let alone the reasons. Can you or Pew expand on this?
Yeah, I’m working on this, actually. 🙂
Looking at a subset* of teacher plans over the same period, total benefits paid in 2000 were about $18.9 billion, increasing to $56.4 billion in 2016 – very similar to the overall increase pointed out in the Pew report. It appears that the largest part of the increase was simply due to the maturing of the plans – total beneficiaries went from 915k in 2000 to 1,637k in 2015. That is a 79% increase in the number of beneficiaries. If the benefits kept up with inflation (many of these systems had a COLA in place that would have kept up with inflation, and new benefits would be expected to increase at the same rate as wages), or roughly 40%, the combined impact of increased beneficiaries and inflation would be to boost benefits by 1.79 * 1.40 = 2.51. The actual increase was roughly 3.0; many systems expanded benefits around 1998-2002, which could well explain the remaining difference.
*(the subset included Texas Teachers, CALSTRS, Pennsylvania PSERS, NY State Teachers, Ohio Teachers, Michigan PSERS, Illinois Teachers, Kentucky Teachers, and Chicago Teachers).
Thank you,
For one example, I took a quick look at CalPERS CAFRs for 2001, 2006, and 2017.
In 2001, CalPERS paid out $5,792,948,968 to 375,540 recipients. Ave. pension $15,426
In 2006, they paid out $9,236,073,498 to 382,841 recipients. Ave. pension $24,125
In 2017, they paid out $21,215,888,338 to 668,059 recipients Ave. pension $31,757
There are obviously a lot more retirees now, but those average pensions are still growing faster than inflation. What am I missing?
What does it mean, and is it related to this…
http://www.wirepoints.com/illinois-state-pensions-overpromised-not-underfunded-wirepoints-special-report/
I really think PEW should have explained that better, and good luck with your own research.
Brian…
“many systems expanded benefits around 1998-2002, which could well explain the remaining difference.”
I thought so, too, but the graph shows a very regular increase over the 15 year period.
Yes, in some cases the increase was only partially retroactive – in those cases, you would only see the impact come gradually as new retirees began receiving benefits. Combined with different systems changing benefits at different times and in different ways, it may result in total benefits across all pensions that don’t have a noticeable jump from one year to the next.
Thank you, Brian that sounds logical.
Do you have an opinion as to how this relates to the Wirepoints article…
“Illinois state pensions: Overpromised, not underfunded – Wirepoints Special Report”
Mar.29, 2018
John Klingner
“Stephen, our comparison of the growth in total pension benefits owed to household incomes does not imply the average pension benefit of a state workers has grown at the rate of 8.8 percent a year.”
The pension increases in Illinois look like the same dynamic PEW describes in nationwide benefits. Perhaps Jane can explain better than John Klingner
Was
I haven’t read that article in full, so I can’t comment on it specifically. However, if I understand the comment you quote, it is getting at the same thing we are discussing here – there are many factors that contribute to the overall increase in the benefits paid by pension systems. The increase in the number of beneficiaries, which should have been nearly completely predictable even 20 years ago and largely was not the result of any changes to benefits or eligibility, is a very large one. The growth of the average size of the benefit per beneficiary, perhaps even over and above the inflation, is another contributing factor, one which likely was heavily influenced by benefit/eligibility changes in some systems. Allocating ‘responsibility’ for the overall increase in total benefits paid between these two (and any other contributing factors) is more complicated, though it should be possible to get a rough idea by looking at the characteristics of the beneficiary populations at the two points in time as well as the benefit structure in place.
For what it’s worth…
Before you put too much credence in the Pew report, see John Bury’s analysis, the first point of which is, the Pew report uses CAFR data supplied by state sponsors. It is unreliable but in unknown degrees among the states.
(Side note, 1) I didn’t use quotation marks because I edited out “anxious to low-ball contributions” from his statement.
(Side note, 2) John is an excellent source of all things pension… Public or Private. We could call him johntheactuary, because burytheactuary would be just… wrong.
https://burypensions.wordpress.com/2018/04/16/pew-ranks-2016/
Thanks for this link!