No matter how near to or far from retirement we are, the current parlous state of the US pension and retirement funding “industry” is far from comforting. Just this week, one million Ohio state pensioners learned that their cost-of-living allowances may be cut “as a way to shore up the long-term finances of the fund”. We also saw how Illinois must contribute $130 billion – which it doesn’t have – to eliminate the backlog of its state retirement fund. We learned last month that Kentucky’s state pension system is in dire straits, and may have to drastically cut benefits and payouts.
Some states are now trying to force private workers to become members of, and contribute to, state pension plans.
California just passed a law to force 7.5 million private sector workers to pay into the state retirement system. In this, the Golden State joins Illinois, Connecticut, Massachusetts, Oregon and Maryland. Of note is that these six states rank from having the 2nd to the 13th-worst unfunded pension liabilities in the nation, with Illinois’ pension debt estimated at $77,822 per household according to the Stanford Institute for Economic Policy Research Pension Tracker website. Minnesota is actively studying the issue; they have the 18th-highest per unfunded pension liability. New Jersey’s legislature passed a bill to expand its state retirement system to non-government workers, but Gov. Chris Christie intelligently vetoed the plan.
Why are the weakest government pension systems seeking to force private sector workers to pay into their accounts? There are four reasons: the infusion of new cash can help the balance sheets; millions of additional voters will be made more dependent on government programs; those same voters will be invested in ensuring that state-run pension systems are adequately funded; and the political appointees and politicians who oversee those retirement systems will have billions more in investment leverage to pressure corporations to bend to their progressive demands.
There’s more at the link.
Pension problems aren’t limited to the public sector, either. Corporate pension plans are also underfunded to a very large extent, and private pension savings in IRA’s and 401(k)’s are less than optimal, to put it mildly.
Basically, if you’re depending on any pension fund – public or private – to ensure a comfortable retirement, you need to be rethinking that right now. The odds are good to excellent, IMHO, that you’re going to be disappointed. As for those already drawing a pension, the odds are getting better all the time that their benefits will, at the very least, not keep pace with the real rate of inflation. In many cases, those benefits may be reduced (see Kentucky, for example, as mentioned above).
I recommend reading these articles to get a better sense of what the future holds for US pensions in general. (The last article is the most recent, and a good summary of the current situation. Even if you don’t read the others, I urge you to read that one.)
- Pension News: You’re on Your Own For Retirement
- The Unavoidable Pension Crisis
- Angst in America, Part 3: Retiring Broke
- Angst in America, Part 4: Disappearing Pensions
- Angst in America, Part 5: The Crisis We Can’t Muddle Through
- Pension Storm Warning
I also recommend following Pension Tsunami, for regular updates on state and government pension systems. Remember, if those systems need funding, they get it by taxation – and that means their problems will inevitably affect each and every one of us.
I don’t know that I’ll ever have enough money to pay for my retirement, having initially saved for retirement in another country whose currency has almost collapsed under the weight of prolonged inflation, making it meaningless in US dollar terms; and, after coming here, I earned a very low clergyman’s salary for many years, with no private pension savings possible. I suspect I’ll be writing books as long as I can!
(Of course, it’s only relatively recently that people came to expect to “retire” at all. Right up to World War II, the expectation was that one would work as long as one was able, then rely on one’s children to help out for one’s few remaining years of life. With today’s much smaller families, that’s not likely to work out very well . . . )