Democratic and Republican politicians have damaged the can so much by kicking it down the road that the aluminum can’t even be returned to the store for a nickel, which is, incidentally, how much governments have left in their coffers.
There is a public pension crisis unfolding in America today at the state level. This was confirmed in a new report by Pew Charitable Trusts which discovered that the funding gap for U.S. state public pension systems widened to an all-time high of $1.4 trillion in fiscal year 2016, a $300 billion jump from the previous year. Since politicians, bureaucrats, and unions are unlikely to propose any real solutions, the can will merely be kicked down the road again, ballooning the deficit for years to come.
According to Pew, state public worker retirement funds had $2.6 trillion in assets, but pension liabilities totaled $4 trillion. The numbers were made even worse because the rate of investment returns for multiple state retirement plans fell, adding an extra $138 billion to unfunded liabilities.
Should the market experience a steep downturn, or the projected rate of return dips, the funding deficit could spike to $1.7 trillion.
Only four states maintained fully funded or near fully funded government pensions. Wisconsin was at the top of the list with 99%, followed by New York, South Dakota, and Tennessee with at least 90%. The rest of the country had a maximum of 66% funding. The lowest funded pensions were Kentucky and New Jersey at 31%.
Researchers had a dire warning for states unable to fund their pensions:
“Many state retirement systems are on an unsustainable course, coming up short on their investment targets and having failed to set aside enough money to fund the pension promises made to public employees. Even as contributions from taxpayers over the past decade doubled as a share of state revenue, the total still fell short of what is needed to improve the funding situation.
There is no one-size-fits-all solution to the pension funding shortfall and the budgetary challenges facing individual states, but without new policies that commit states to fully funding retirement systems, the impact on other essential services—and the potential for unpaid pension promises—will increase.”
How does 2017 look so far? Preliminary figures suggest that there might be a drop in reported unfunded liabilities, buoyed by strong investment performance. Pew does state, however, that market volatility could present long-term headaches because lawmakers have failed to put forward adequate annual contributions to state pension systems.
So, how exactly did the Bluegrass State and The Garden State get to this point? Let’s explore.
The Pension Plight of Kentucky
Kentucky needs to fill a $39 billion hole to pay off pension and healthcare obligations for retirees over the next 30 years. The state’s pension woes have metastasized in the last decade as Kentucky once maintained a 94% fully funded pension scheme. This changed when politicians obtained some political capital in exchange for benefits for public workers, which took money out of the system and intensified the negative cash flow.
It doesn’t get any better for Governor Matt Bevin (R-KY), who was elected to fix this fiscal mess. He has engaged in a months-long battle with perturbed teachers over education funding and a pension plan that only has a third of what it needs to pay retirees. Though teachers have been some of the greatest beneficiaries of Mephistophelean politicians negotiating fat contracts, they are staging demonstrations to demand more.
A coalition of business leaders and GOP activists wrote in a letter to the General Assembly that the 2018 legislative session could switch all future civil servants from a defined-benefit system to a defined-contribution plan. The former is when an employer (taxpayer) covers all the costs and promises a monthly payment upon retirement, while the latter requires employees to add their own funds.
The letter said:
“Under the existing (defined-benefits) system, Kentucky taxpayers and businesses are forced to shoulder the entire burden of risk. Pension reform that fails to change the structure of the pension system is a disservice to the people of Kentucky.”
Despite Gov. Bevin’s best efforts for pension reform success, he is facing stiff resistance from one of the most powerful entities in the U.S. today: teachers unions.
The Pension Plight of New Jersey
New Jersey isn’t faring any better. Its public pension system is in shambles: unfunded pension and retiree healthcare liabilities top $200 billion. But, unlike his Kentucky counterpart, Governor Phil Murphy (D-NJ) is doing more of the same: spend, spend, spend and tax, tax, tax.
Last month, the governor delivered his first budget speech, and both Democrats and Republicans were disappointed because it failed to address the meat and potatoes of the state’s fiscal woes.
Murphy outlined a short-term solution for pension shortfalls: taxpayers will bail out the government. As part of the Murphy budget, there is a $3.2 billion payment coming to the $77.6 billion New Jersey Pension Fund.
This is a far cry from 2005 when Murphy headed a commission to study the matter. He was realistic in his findings and conclusions: raise the retirement age from 55 to 60, end gimmicks designed to mask liabilities, remove pension holidays, and eliminate borrowing. These ideas were swept under the rug for being politically unfeasible.
The Manhattan Institute, a conservative think-tank, warned of a pending catastrophe, too:
“It is highly unlikely that New Jersey will generate enough new revenues to meet its pension obligations without severely hobbling the rest of the state’s budget. At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions.”
New Jersey taxpayers would love to shout “fuhgeddaboudit,” but that’s unlikely to happen.
Crumbling Pensions in America
We took too much, we paid too little. We thought we could get something for nothing. We were wrong.
Across the U.S. today, nearly every level of government is witnessing the collapse of their pension systems. Social Security faces a $11.4 trillion shortfall, California’s government pensions are $1 trillion underwater, city governments risk bankruptcy because they’re on the hook for hundreds of millions of dollars in unfunded liabilities.
The private sector has been in a retirement crisis for a long time. After years of sponging off the taxpayer, the public sector is now in the same boat. The taxpayer is tapped out, government coffers are bare, civil servants want more, and politicians are too frightened to grab the chainsaw. What a dilly of a pickle. Mass madness has infected the public ledger. When will this fiscal insanity finally be cured?
What do you think of the U.S. pension crisis? Let us know in the comments section!Feel free to comment below. And remember to check out the web’s best conservative news aggregator Whatfinger.com