Coming Pension Meltdown: The 10 Most Troubled City Systems

oters in Cincinnati last week soundly defeated a ballot initiative which would have overhauled the pension system for public workers, leaving the city without a plan to deal with $872 million in unfunded liabilities. 

Cincinnati is not alone.

Across the nation, cities and states are finding funding for basic services being crowded out of their budgets by the rising cost of retirees' pensions and healthcare. 
The Cincinnati initiative would have turned the public pension system into a 401(k) style-plan and require the city to pay off its unfunded liabilities in 10 years. 
It failed 78 percent to 22 percent, an example of the opposition that cities face when trying to tackle the politically sensitive issue of funding retirees' benefits.

More and more cities, counties, and even some states will face the harsh reality of having to fix their pension systems or deal with a Detroit-style bankruptcy.
"This is happening in too many cities and towns across America, where social services, because they can be cut, are cut. Because pensions and bonds constitutionally cannot be cut, they're the protected class," Wall Street financial analyst Meredith Whitney told CNBC.

"I think you're going to see a real issue of neighbor against neighbor on these very issues," said Whitney, who recently co-founded Kenbelle Capital LP, a New York hedge fund.
Whitney argues in her recently released book, "Fate of the States: The New Geography of American Prosperity," that cities and states which delay addressing the crisis will witness a continued decline in growth.
A study by the Pew Center earlier this year looked at 61 cities — those with populations over 500,000 plus the largest city in each state — and found a total gap of $217 billion between pension and retiree healthcare obligations and the funding saved to pay those costs.

According to Pew, those cities had a total pension liability of $385 billion, with 74 percent funded, leaving a $99 billion shortfall. 

The situation regarding retiree healthcare benefits in those cities is far worse, with a total of $126.2 billion of liabilities that are only 6 percent funded.

But here’s the real rub: experts are warning that many pension systems, those claiming they are well funded and those who say they aren’t, have all been using rosy projections about future investment returns.

In a recent editorial in Barron’s, Thomas Donlan writes that pension funds have “hidden the results with dubious financial reporting.”

He cites as just one example Detroit, which claimed as late as 2011 that their pension funds were 80 percent fully funded. New auditors found a $3.5 billion shortfall, a hole that pushed the city into bankruptcy.

Detroit, he says, was using the standard 8 percent return on assets, widely used by other funds. Donlan argues that is foolhardy to claim an 8 percent rate of return.

Consider that since January 1, 2001, the Dow Jones has appreciated, on average, a paltry 2.2 percent, with the S&P growing just 1.36 percent.

Instead, Donlan suggests pension funds use a 4 percent rate, the blended rate for no-risk Treasuries or a 5.5 percent rate, consistent with current corporate bond payouts. But if pension funds were to be honest and use such numbers, real unfunded liabilities would jump by a third or more.

Here are the top 10 cities with the lowest percentage of funding for pension liabilities

City	Total Liability	% Funded
Charleston, W. Va.	$270 million	24
Omaha, Neb.	$1.43 billion	43
Portland, Ore.	$5.46 billion	50
Chicago, Ill.	24.97 billion	52
Little Rock, Ark.	$498 million	59
Wilmington, Del.	$364 million	59
Boston, Mass.	$2.54 billion	60
Atlanta, Ga.	$3.17 billion	60
Manchester, N.H.	$436 million	60
New Orleans, La.	$1.99 billion	61

http://www.newsmax.com/Newsfront/city-pension-shortfall-underfunded/2013/11/11/id/536027