NCPA - National Center for Policy Analysis


June 2, 2010

Lawmakers are supposed to set aside money each year to fund public pensions, but they often divert that money to other programs.  In the meantime, the unfunded pension liability grows -- silently, inexorably shackling future generations to suffocating debt.  In other words, unfunded public employee pensions are a ticking time bomb that threatens economic collapse in cities and states across the country, says Don Brunell, president of the Association of Washington Business. 

According to an analysis by the Pew Center on the States: 

  • State and local governments now owe at least $1 trillion to public employee pension accounts.
  • To pay that debt, taxpayers would have to spend $1 million a day for the next 2,740 years.
  • That works out to about $8,800 for each American household, on top of their estimated $120,000 share of our national debt. 

How did this happen?  Simply put, state lawmakers didn't make the required payments to their pension plans, explains Brunell: 

  • According to the Washington Post, "They failed to squirrel away enough money to pay retiree health benefits and, perhaps most egregious, they increased their benefits without figuring out how to pay for them."
  • A separate report by Wilshire Consulting on 125 state plans found that in 2008 elected officials paid only 65 percent of what they owed to state pensions.  

Pew's $1 trillion figure -- tallied through the end of the 2008 fiscal year -- is conservative given that it doesn't capture the stock market losses incurred in the second half of that year.  To make matters worse, the study did not include many city, county and municipal pension plans, which are thought to have similar funding shortfalls, says Brunell. 

To help close the gap, other states are scaling back their retirement plans: 

  • According to Pew, 10 states have curbed benefits to new workers or raised the retirement age.
  • Nevada, for instance, lowered pension benefits for those hired after Jan. 1; it also raised the retirement age for public workers from 60 to 62, starting this year.
  • Another 10 states -- including Iowa, Nebraska and New Mexico -- boosted employee contributions.
  • Workers are also contributing more to their retirement health care plans; for instance, new state workers in Kentucky must now put 1 percent more of their paychecks toward their retiree health plans. 

Source: Don Brunell, "Public employee pensions are a ticking time bomb," The Columbian, June 1, 2010. 

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