PUBLIC-SECTOR PENSION CRISIS WORSENS
March 30, 2006
While private-sector pension terminations and freezes are grabbing headlines, the situation is every bit as grave for government pension systems, says Adam B. Summers, a policy analyst at the Reason Foundation.
Like many of the remaining traditional defined-benefit pension plans in the private sector, government pension plans are swimming in red ink:
- As of January 25, 2006, the National Association of State Retirement Administrators and National Council on Teacher Retirement reported an aggregate unfunded liability of nearly $296 billion for the 103 pension systems and 127 total plans in their Public Fund Survey.
- A 2004 analysis by Wilshire Associates put the unfunded liability as high as $366 billion.
Moreover, pension funding problems are hitting state and municipal governments across the country:
- The City of San Diego is now embroiled in its worst financial crisis ever, with an estimated pension deficit of $2 billion threatening to consume as much as one-third of the city's general fund.
- In Illinois, taxpayers face a pension deficit estimated at $38 billion -- the worst in the nation.
- The state of West Virginia faces a $5.5 billion pension deficit and an additional $3.3 billion in unfunded workers' compensation liabilities -- a total deficit nearly three times the state's annual $3.1 billion general fund budget.
- In California, the teachers' retirement system now faces a shortfall of more than $24 billion, and the state's combined contributions to the public employees' and teachers' plans now exceed $3 billion per year.
In the public sector, politicians and bureaucrats frequently have blamed unfunded actuarial pension liabilities on factors outside their control, such as the stock market downturn that followed the "dot-com" boom of the late 1990s. While sagging returns certainly did not help pension investment portfolios, they account for a fairly small portion of the problem, says Summers.
Source: Adam B. Summers, "Public-Sector Pension Crisis Worsens," Heartland Institute, March 1, 2006.
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