U.S. Dept of Treasury to scrutinize public pensions

The Treasury Department's new office on state and local finance will scrutinize public pensions, appointing a specialist in the area and becoming a resource for retirement planning, its inaugural director said in a speech on Monday.

State and Local Finance Office Director Kent Hiteshew told a meeting of the Council of State Governments that he had appointed the chief investment officer of Maryland's pension fund as a special adviser who 'will substantially strengthen our office's understanding of the critical challenges facing a system upon which approximately 23 million Americans depend ... for their retirement security.'

Saying that state and local pensions now have enough money to cover only 72 percent of their costs, in comparison to nearly 100 percent in 2000, Hiteshew added that very few pensions are well-funded.

'While the current underfunding started prior to the Great Recession, this was exacerbated by both market forces and trying fiscal times during the last few years,' he added.

Public pensions had $4.89 trillion in assets in the first quarter of 2014, the highest on record, according to data from the U.S. Federal Reserve. But they also had the largest liabilities on record going back to 1945 - $5.03 trillion - and their funding gap has widened since the 2007-2009 recession.

That recession devastated investment returns, which are the chief revenue source for pensions, while simultaneously forcing states to cut retirement contributions. While investments are gaining and many states have increased their contributions, public pensions face a bulge of retirees from the 'Baby Boom' generation.

Hiteshew's office will study the state of public pensions and help retirement systems evaluate their financial conditions, and it will look into the growing costs of retiree healthcare.