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Everything You Need To Know About Our Pension Crisis


The Economist is worried about America’s shambolic pension systems, and you should be too.

Many have been arguing recently that Detroit is an outlier, but we wonder whether they have seen the national and state-by-state pension liabilities numbers that Moody’s published and the Economist analyzed. A nationwide shortfall of $1 trillion rounds out the “optimistic discount rate” that states themselves apply to their pension obligations; some think it could be as much as 25 percent worse than that. Illinois leads the pack with a pension liability equal to 241 percent of its annual tax revenues:


For everything you need to know about America’s pension crises, read the whole article here. Besides the billion dollar shortfalls, you’ll learn about: retired fire chiefs making over half a million dollars a year; tens of thousands of public servants in California with pensions over $100,000 per year; and widespread use of pension gambits like “spiking” (when public employees use overtime and unused holiday to inflate their final-year salaries, thus raising the base of their future pensions) and “double-dipping” (when a public employee collects pension payments while returning to a salaried job).

The Economist suggests that public employees retire later, and that states hasten the shift to defined-contribution schemes. To that we would add large-scale regulation and oversight of public pension systems and aggressive surveillance of collusion between union heads and politicians.

As the Economist concludes:

Uncle Sam offers an array of “entitlements” that there is no real plan to pay for. Barack Obama is on his way to joining George W. Bush as a president who did nothing about that, while Republicans in Congress imagine they can balance the books without raising taxes. The government spends more on health care than many rich countries and still does not cover everyone. America’s dynamic private sector is carrying on its back an unreformed Leviathan. Detroit is merely a symptom of that.

Our thoughts exactly.

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  • Matthew Schultz

    The Economist did a good job on this issue. I’m glad they are covering it in some detail, as it is one of those few economic issues worthy of serious concern, even alarm.

    • Andrew Allison

      Think Greece! Public employee pensions are, inevitably, going to take a huge hit. As to no fault, did the union members not appoint the leaders who negotiated these benefits?
      Something which I haven’t seen addressed is the extent to which those public employees who remain employed will conclude that they’d be better of staying at work than retiring, thereby exacerbating the already rampant unemployment among the younger cohorts.

      • Matthew Schultz

        I’ve always seen Japan as a “better” (ha) model for us.

        Either way, I apologize for being unclear: I didn’t mean to excuse union leaders or other similar people in positions of power, but rather those in the rank and file who were falsely promised reliable retirement benefits.

      • bpuharic

        Number of unions in TX? LA? Oh…zero.

        • Andrew Allison

          Relevance? None.

          • bpuharic

            Really? The fact the right has been screaming that UNIONS CAUSE BANKRUPTCIES when it’s apparent places without them are in trouble

            Oh…that fact destroys the right wing argument against unions

            Yeah I can see why you’d say that

  • bigfire

    Damn, we’re not #1. But fear not, with public employee union back Democrats having super-majority, and owning every single other significant seat of power in Sacramento, California will surely find a way to wrestle that crown from Illinois.

    • bpuharic

      Guess you missed the fact TX, LA, OK and other extreme right wing non union states are on the list.

  • stefanstackhouse

    The problem isn’t defined benefit plans per se. When these are properly managed, with full-funding by employer and employee contributions annually (using conservative actuarial assumptions), then defined benefit plans are in fine shape. See North Carolina as an example of a state that has done exactly this for many decades. There is no good reason to say that jurisdictions that are running their defined benefit plans competently must ditch them in favor of defined contribution plans just because other jurisdictions haven’t done such a good job of it.

    The problem isn’t with the defined benefit plans, but with their management by kleptocratic politicians that habitually over-promise and under-fund. I suppose that switching to a defined contribution plan is one way to get their hands off if all else fails, but this doesn’t mean that defined contribution plans are inherently better than defined benefit plans. It just means that our governance is so dysfunctional that, once again, we have to settle for second best.

  • Kavanna

    The Economist article is excellent. Too bad we no longer have that kind of journalism here, apart from some specialized outlets, like Bloomberg.

    “… aggressive surveillance of collusion between union heads and politicians” should be amended to include Wall Street. Poor planning and fantasy accounting have been aided and abetted by cronyistic relations between state politicians and Wall Street firms eager for the business and willing to bend the truth. The career of one J. Corzine (strangely absent from the general media … Obama’s main Wall Street bundler!) is a cautionary tale, from the perspective of one of the states on the “bad” list (New Jersey).

  • wigwag

    This post is interesting, but the chart highlighted above tells a story that is incomplete. The solvency of state pension funds tells only a small part of the story because in many states the state funds are administered separately from municipal pension funds. Nebraska is a perfect example; based on the information provided in the chart (pension liabilities of only 7 percent of state revenue) its easy to assume Nebraska is in great shape; it isn’t. Omaha, the seat of Nebraska’s unicameral actually runs a pension plan that is dramatically more poorly funded than the pension fund in Illinois.

    On the other hand, there are some states where the State fund and municipal funds are both doing well. The best funded state plan in the United States is New York’s which has
    101 percent of the funds needed to cover its liabilities. New York City’s plans are doing well but not as well as the State; it has 71 percent of the assets needed to meet its liabilities. While New York State is doing extremely well and New York City is doing pretty well, other cities in the State like Rochester and Buffalo have plans that are in very serious trouble. The chart listed above doesn’t provide any of this granular detail.

    There are also some surprises; Milwaukee has a surplus with enough money to cover 113 percent of its liabilities and Washington, D.C. (of all places) had enough of a surplus to cover 104 percent of liabilities. In other words, Milwaukee and Washington, D.C. had stronger plans than the most solvent State plan in the nation; New York’s.

    Of course these numbers reflect only the solvency of the defined benefit plans under discussion, not the liabilities for promises health coverage which are both massive and universally under funded.

    More detail can be found here,

  • lukelea

    Comparing net pension liabilities (a stock) with annual state revenues (a flow) is not very enlightening.

  • avery12

    “…while Republicans in Congress imagine they can balance the books without raising taxes.”
    The American taxpaying citizen has already been ripped off enough by the collusion between Democratic policiticians and the unions. Ripping off the taxpayer some more is hardly the ‘solution’ I am looking for to this ongoing abuse.

    • bpuharic

      Avery kinda forgot that TX has no unions and is run by the GOP.

      Oh well…Rush (PBUH) didn’t want to scare him.

  • Chris Tobe

    In Kentucky no one will admit we have a problem so I wrote a book

  • bpuharic

    You’re blowing my mind. I thought this was EXCLUSIVELY a problem caused by communism and unions. It’s impossible for TX, OK, LA, AL, etc. to have a pension problem because they’re total free enterprise zones where the poor have to eat their children to survive.

    Guess all the hoopla about Detroit was a bit premature. Guess all the screaming about how unions doom nations got a bit ahead of itself.

  • bpuharic

    The real issue is we need to grow out of the lackluster economy we’re in by increasing consumer spending.That accounts for 70 percent of GDP

    But, of course, the middle class is tapped out, having had no pay increase for 30 years. As Robert Reich recently pointed out, if we had the same income distribution profile 1976-2007 as we did 1949-1976 median income in this country would be $90,000 instead of fifty thou

    Anybody think the middle class would be spending more if median income was 80 percent higher than it is now? Instead we loaded up the 1 percent.

    And this is the economy we got, thanks to supply side economics.

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