PBGC about to get overrun...

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By David Evans

March 3 (Bloomberg) -- The Chicago Transit Authority
retirement plan had a $1.5 billion hole in its stash of assets
in 2007. At the height of a four-year bull market, it didn’t
have enough cash on hand to pay its retirees through 2013,
meaning it was underfunded to the tune of 62 percent.

The CTA, which manages the second-largest public transit
system in the U.S., had to hope for a huge contribution from the
Illinois state legislature. That wasn’t going to happen.

Then the authority found an answer.

“We’ve identified the problem and a solution,” said CTA
Chairman Carole Brown on April 16, 2007. The agency decided to
raise money from a bond sale.

A year later, it asked Illinois Auditor General William
Holland to research its plan. The state hired an actuary, did a
study and, on July 17, concluded that the sale of bonds would
most likely result in a loss of taxpayers’ money.

Thirteen days after that, the CTA ignored the warning and
issued $1.9 billion in bonds. Before the year ended, the pension
fund was paying out more to bondholders than it was earning on
its new influx of money. Instead of closing its funding gap, the
CTA was falling further behind.

Public pension funds across the U.S. are hiding the size of
a crisis that’s been looming for years. Retirement plans play
accounting games with numbers, giving the illusion that the
funds are healthy.

The paper alchemy gives governors and legislators the easy
choice to contribute too little or nothing to the funds, year
after year.