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“Now, here’s the thing: With all economy, taxes, revenues are down…
…where’s the state going to get the money?
The teachers are very deserving, but here’s the problem…
…If you were sitting back waiting for somebody else with your 401(k) or your pension fund, you’re making a mistake.”
Disaster
Today we’re going to talk a little bit about IRAs and 401(k)’s and stock market and — what a disaster — and really look at some serious numbers. The first thing I want to touch upon is an article last Sunday in the Fort Worth Star Telegram. It was written by Kate Alexander of the Austin American-Statesman.
And the headline was “Market losses may affect pension fund for decades.” And the pension fund they were talking about was the Teacher Retirement System of Texas and how what happened- these market losses, may affect the pension fund for decades.
Problems
And you know even though the market seems to have been turning around and the economy may be coming back up a little bit, there are problems. Not that there won’t be money for the pension, but you might have a fixed income.
So I want to read a little bit about this right now. And the sub-headline is: “Active members and the state may need to contribute more and lawmakers may need to reduce future benefits.” This goes on to say:
“The worst of the past year’s financial upheaval might be over, but the fund that provides retirement benefits to Texas teachers will feel the effects for many years, actuaries say.
“‘There’s virtually no way that this state can give a permanent increase to your retirees in the foreseeable future,’ says Michael Carter, an outside actuary for the Teacher Retirement System of Texas. ‘The depth of what the markets have done in this decade will be felt for probably at least 20 years, and will impact what this system will be able to do,’ Carter said, referring to the recent market decline and the losses that followed the dot com bust in 2001-2002.
Ante Up!
“Over the past ten years the fund earned on average 3.3 percent, compared with an expected return of 8 percent. It was sobering news for the board of the $94 billion pension fund and its 1.3 million retired and active members.
“It was a clear signal that the state—and perhaps active members—will probably need to ante up more in 2011, and that the legislature might have to reduce benefits for future retirees.
“Now, the fund can cover benefits through 2058, so there’s no worry that retirees won’t get their regular checks. But retirees are concerned that they can’t keep up with rising costs unless they get a benefit boost.
“The legislature tried to provide retirees a one-time payment of $500 in the 2010-11 biannual budget, but because of legal questions, budget writers made the payment contingent on approval by the Texas attorney general Greg Abbott. In late November, he determined that the payment could not be made because it might violate the state constitution.”
Market Losses
So this is back to the Teacher Retirement System of Texas. It’s their pension fund, so right now here I’ll pick up from the article.
“That means the only way to increase retiree benefits is to make the fund actuarially sound meaning it can cover its current and projected obligations over 31 years. It now has 83 cents for every dollar needed to cover promised benefits over the long term—that’s the lowest funded level since 1987.
“That figure is expected to decrease next year, because $18 billion in investment losses will be accounted for over several years. During the market tumult of the past year, the funds assets plummeted from about $105 billion in August 2008 to $67 billion in early March—August of 2008 it was 105 billion and now it’s down to 67 billion in early March now it has soared back up to $89 billion in August.
“For fiscal 2009, which ended in August, the market return was down 13.5 percent. Now, even though—and Steve’s going to be a great help with his numbers when we come back from the break—the fund has been on an unprecedented upswing since the spring, and the most recent quarterly performance was the best in its history with more than $10 billion in investment returns, it is not likely that investment returns alone will dig the fund out of the hole.
“Getting it back to its 2008 level will require a one-year return of 38 percent or an annual 11 percent return for ten years. The only other choices are increased contributions, which come from both the state and the teachers, or to reduce future benefits.
“So it’s going to be up to the legislature to see what approach they can do. Ted Melina-Raab of the Texas chapter of the American Federation of Teachers said the teachers he represents will want to see the state pony up more before they are asked to contribute more.”
Mistakes
Now, here’s the thing: With all economy, taxes, revenues are down, where’s the state going to get the money? The teachers are very deserving, but here’s the problem: If you were sitting back waiting for somebody else with your 401(k) or your pension fund, you’re making a mistake.
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