Here at Via Meadia, we’ve been covering the expanding pension crisis in-depth as it spreads from state to state and city to city. Today, a new piece in the Wall Street Journal lays out a comprehensive picture of the state of American pensions.The findings are not encouraging. Most alarmingly, the Journal estimates the total funding gap for all non-federal American government pensions at a substantial $900 billion. (Other estimates are considerably higher.) Many states and cities have recognized the problem and are taking action to correct this shortfall, but thus far they have only succeeding in cutting the gap to a still-massive $800 billion. Worse, many of these changes are designed only to affect future hires rather than the current workforce. This will pay off down the road, but does little to solve the problems that will arise when the current group of workers retires.It is, of course also profoundly unfair that when sacrifices must be made, they are all made by younger generations while the Baby Boomers — whose foolish and imprudent political decisions did so much to create this mess — escape in many cases scot free.
For years, part of the attraction of public service jobs has been guaranteed pensions and other benefits. That remains largely intact for current workers. Only a handful of states have replaced some guaranteed pension benefits with 401(k)-style retirement accounts that are commonplace in U.S. corporations.Experts say the differences between public and private retirement benefits will eventually narrow as cuts to new workers’ plans take hold.Many states have avoided reducing benefits for current workers or retirees, saying the plans have legal protections. Courts in Minnesota and Colorado have ruled that cost-of-living raises can be reduced.“There is a lot of gray area,” said Alicia Munnell, director of the Center for Retirement Research at Boston College. More states could try to cut future benefits for current workers because the laws aren’t clear, she said.
With an $800 billion gap left to cover, it appears inevitable that cities and states will eventually have to take on the benefits of current workers, many of whom have already paid into the system and made financial plans for their retirement based on policies that were in effect over the terms of their careers. When this begins, expect pension battles that make the union conflicts of the past year look small by comparison.Read the whole thing. There is one bright spot: the large majority of states have taken at least some initial and halting steps to deal with the issue. Math rules; even the most powerful political interests at some point must bow to the laws of arithmetic.