We Are Out of Money: State Pensions Edition


Today's Washington Post gives the full-article dire-warning treatment to a new Pew study on long-term state benefit obligations. Unless you get really excited by giant-sized, unpayforable public liabilities, the news is pretty bad: States are on the hook for a trillion-plus bucks in pension benefits that they don't have money to pay for:

The state funds that pay pension and health-care benefits to retired teachers, corrections officers and millions of other public workers faced a cumulative shortfall of at least $1.26 trillion at the end of fiscal 2009, according to a new report.

The study, to be released Tuesday by the Pew Center on the States, found that the pension and health-care funding gap increased by 26 percent over the previous year. Pew officials said the growing shortfall was driven by inadequate state contributions, an aging population and market losses that accompanied the recession.

…"In many states, the bill for public-sector retirement benefits already threatens strained budgets and is competing for resources with other critical needs, including education, infrastructure and health care," said Susan Urahn, managing director of the Pew Center on the States.

In reality, the numbers are probably a lot worse. Pew calculated the headline liability figures by using states' overly rosy assumptions about pension fund growth:

In making its calculations, Pew used the states' assumptions for what their pension funds would earn in annual investment returns, typically 8 percent — a figure that states have mostly met in recent decades but that some analysts think is now overly optimistic.

If states calculated their investment returns the same way that private firms are required to for their pensions, their obligations would balloon to $1.8 trillion, the report said. If states pegged their returns to 30-year Treasury bonds, an even more conservative standard, the liability would be $2.4 trillion.

But why worry? After all: "Government employee union leaders, meanwhile, say the problems plaguing public pension plans are largely overstated," reports the Post. Maybe if we all ignore it long enough, that trillion-dollar liability will just up and disappear. Fingers crossed! 

Read Reason economics columnist Veronique de Rugy on the state-pension time bomb.

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12 responses to “We Are Out of Money: State Pensions Edition

  1. “Government employee union leaders, meanwhile, say the problems plaguing public pension plans are largely overstated.”

    “As long as there’s cash to pay current benefits, I’m cool.”

    1. “Maybe if we all ignore it long enough, that trillion-dollar liability will just up and disappear”

      I wonder if this might actually happen in a manner of speaking – states (enabled by executive proclamation or an act of CONgress) relieve themselves of the onerous burden and discharge it to the Feds, who pay the retirees pennies on the dollar.

      1. If we ram the iceberg hard enough, maybe we can push it out of the way.

      2. Unless there are non-bullshit inflation indexes built in to their payouts, the Fed is busy on that right now.

  2. Out of money? Don’t worry, perhaps Obama will print more.


  3. Cue Tony!! with his best Chip Diller impersonation.

  4. C’mon. The State is never out of money. As long as you still have some.

  5. Facts are facts and this crisis has been brewing for years. We’ve either to eliminate some benefits or go broke.


  6. Why worry indeed?

    I’m not worried. The ones who should be worried are the public sector employees whose promised benefits are now probably worth less than 50 cents on the dollar if you opened up a fair market on them. Which, by the way, maybe we should? (An In-Trade for pension futures – cool idea.)

  7. OK that sounds like a plan dude, Well done.

  8. I vote to ignore the problem. Why ? Because almost all Public Sector Plans were “negotiated” at a “bargaining table” where no one had taxpayer interests in mind.

    And, with cash pay in the Public and Private Sector relatively equal, there is no justification for greater taxpayer contributions toward Civil Servant retirement Plans than what Private Sector Employers are willing to pay towards THEIR employees retirement Plans.

    Combine this with the fact that I’m sure taxpayers have ALREADY contributed AT LEAST AS MUCH to Civil Servant retirement Plans as have Private sector employers, and there is NO JUSTIFICATION for taxpayers to pay anything further.

    Further payments by taxpayers would simply reward Civil Servants for having hoodwinked us via campaign contributions and election support of elected official who in exchange approved higher pay and greater pensions and benefits.

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