We’ve spoken before in these pages about the crisis in US pension funding. For example, consider these three articles:
“As California goes, so goes the nation”
It therefore comes as no surprise to learn that the US pension crisis is, in fact, far worse than previously estimated. The Financial Times reports:
The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies.
According to academic research … the collective funding shortfall of US public pension funds is three times larger than official figures showed, and is getting bigger.
Devin Nunes, a US Republican congressman, said: “It has been clear for years that many cities and states are critically underfunding their pension programmes and hiding the fiscal holes with accounting tricks.”
Mr Nunes, who put forward a bill to the House of Representatives last month to overhaul how public pension plans report their figures, added: “When these pension funds go insolvent, they will create problems so disastrous that the fund officials assume the federal government will have to bail them out.”
Large pension shortfalls have already played a role in driving several US cities, including Detroit in Michigan and San Bernardino in California, to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits.
Joshua Rauh, a senior fellow at the Hoover Institution, a think-tank, and professor of finance at the Stanford Graduate School of Business, who carried out the study, said: “The pension problems are threatening to consume state and local budgets in the absence of some major changes.
“It is quite likely that over a five to 10-year horizon we are going to see more bankruptcies of cities where the unfunded pension liabilities will play a large role.”
There’s more at the link.
Even if you don’t expect to retire soon, if you’re living in a city or state bedeviled by underfunded pensions, the problem is going to land right in your lap, because local and even state governments are likely to end up effectively bankrupted by it. Every other service they offer will be affected by the shortfall, which will soak up all their available funds to rectify the problem – unless the pension deficit is simply legislated out of existence, or the government entities concerned default on their obligations.
As for “fund officials assume the federal government will have to bail them out” – fuhgeddabahtit! I’m sure the left-wing, progressive arc of US politics will try to ensure that happens, but that merely spreads the misery – and the future financial burden – onto every US taxpayer, whether or not they bear any responsibility for it. That’s anything but fair, and I think if they try, the backlash from taxpayers will be extreme (at least, I hope it will).
Keep your eye on this issue, folks. It’s yet another harbinger that, economically speaking, we’re riding for a fall.
"Illinois — looking at you"
Arizona government pension plan is proudly at 77.5% of covering their obligations. It's worrisome that they consider 77.5% a thing to be proud about!
It's endemic across the country… I will be surprised if, in ten years, there are ANY solvent pension plans left!
California appears to be a black hole for many things. The just announced today larger family leave benefits, even for those with marginal jobs.
While I laud the concept, I don't understand from WHERE the revenues will come in an already over-taxed populus?