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US States' Pension Bill: $2.5 Trillion


Two and a half trillion dollars: That’s the most recent estimate for US states’ total unfunded pension liabilities. Nathan Benefield at USA Today breaks down the painful consequences of letting a defined-benefit system run amok for decade after decade:

One inescapable fact remains: Without meaningful reform, paying down these liabilities would cost the average American household an additional $1,385 in taxes every year for the next three decades. […]

Consider Pennsylvania: The Keystone State’s ongoing pension reform debate is a microcosm of the larger national pension problem. Today, the state faces a $47 billion unfunded pension liabilitythat’s $9,000 owed per household. And this debt tsunami is picking up speed; A 2010 law artificially caps pension contributions and hides stock market losses for a decade. By 2018, the state pension debt will rise to $65 billion, a staggering $13,000 owed by each Pennsylvania family.

Pennsylvania Governor Tom Corbett (R) is one of the Governors leading a charge to change his state’s defined-benefit system to a defined-contribution one modeled on the 401(k). We’re not sure this is the panacea that will finally get “politics out of pensions” for good, as Benefield predicts, but removing the ability of lawmakers to pile on benefit after benefit for years while leaving it to their successors to pay the bills would go a long way toward helping public workers, taxpayers, and state finances.

The big losers in this shift would be public employee unions, who would lose some ability to bargain for better benefits. But what’s bad news for unions isn’t necessarily bad news news for union members, who after all are the ones who suffer most when states and cities can’t afford to pay out pensions as promised.

[American piggy bank image courtesy of Shutterstock]

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