Rooted in Reason: Nurturing the Seeds of Liberty


The Pension Trend by maliab
May 22, 2011, 5:11 pm
Filed under: Hawaii Sunshine | Tags: , , ,

By Malia Hill

What will states and municipalities do when the pension funds run out?  After all, the concept of a truly bankrupt state is a tough one to envision–especially when the tax revenues can keep rolling in.  Will they just stop writing pension checks?  Stop paying something else?  These are the questions that Frank Keegan ponders in a recent Hawaii Reporter article on the nationwide pension crisis:

Prichard[, Alabama] simply stopped writing pension checks almost two years ago, leaving retirees without promised income even as the town forces current employees and taxpayers to keep paying into the fund.

Sure, Prichard is only a municipality, and states are states. But that might not make much difference when the money runs out. In fact, as sovereigns, states can pretty much pay — or not pay — whom they choose.

None of the pension reforms states have proposed or passed will have any significant impact on the existing pension liability estimated at $700 billion to more than $3 trillion.

According to a report this month by the Congressional Budget Office, “By any measure, nearly all state and local pension plans are underfunded, which means the value of the plan’s assets is less than their accrued pension liabilities for current workers and retirees.”

CBO acknowledges reality based calculations showing pension fund money for some states and municipalities will be gone long before workers die even in the unlikely event taxpayers and employees keep making full required contributions and investments achieve the most optimistic gains.

Then what? The CBO report­­ admits the longer governments wait, “the larger those shortfalls could become. Most of the additional funding … will require higher taxes or reduced government services for residents.”

. . . .

When pension fund money runs out, must governments turn on The People to guarantee false promise of benefits? Is serving public employees the highest priority of government?

Not according to a report for the Civic Committee of the Commercial Club of Chicago.

In a study on the dystopia state of Illinois — the biggest fiscal catastrophe in the nation with the strongest legal protections — ­­pension “… debt obligations rest solely with the State’s employee pension funds. The State itself is not a guarantor of that obligation.”

So, while some states must fully fund contributions to pension plans every year — most don’t — nothing requires them to pay specific benefits.

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