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Is the Pension Crisis about to Snowball?

Reuters brings us the latest in a string of bad news on the pension front. A study by Loop Capital Markets found that nearly two-thirds of state pension plans are funded below the minimum healthy level of 80 percent.

Yet more troubling than this finding is the fact that investors are commissioning such studies in the first place. It tells us that municipal bond investors’ concerns about the pension situation have hit a new threshold. Cities and states who don’t get their pension obligations (including health insurance) under control are going to start facing higher interest rates on their debt as the bond markets start pricing this risk.

This is going to drive even more confrontations between state and local governments and their workers. If underfunded pension liabilities start impacting debt obligations, politicians will be much less willing to play the old “let’s pretend” game with the unions.

At Via Meadia we think the pension crisis is part of a larger meltdown in the American social model; signs that bond investors are taking a much harder look at the way states and cities do business reinforce that concern. This isn’t going away.

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