State Retirement Crisis

The article below details the growing disparity between promised state retirement promises and their actual funding. North Carolina shares in this fiscal crisis and there are only three ways to proceed:

  1. Cut benefits and retirement for state workers.
  2. Raise taxes to cover the shortfall.
  3. A combination of both.

 All three options will cause problems for legislators in the general assembly in the next election. It is easy to place the blame on politicians but the solutions must be faced by the people. How we deal with the consequences of fiscal irresponsibility and politician empire building will show the measure of the people’s duty to our state and country.

There will be many organizations who will use this as an opportunity to advance their agendas. “Never let a crisis go to waste” has been shown to be an effective means to also implement governmental changes through history. In some cases the crisis is manufactured and in others, the crisis is real and must be responsibly dealt with. How the people react to these measures will show if we are a moral and virtuous society. If we are not, the people will be manipulated into civil unrest as we are seeing across the Middle East and Northern Africa.

Would you be willing to pay more in taxes to support state workers’ benefits and retirement plans? Would a state worker agree to decreased benefits and retirement plans?

David DeGerolamo

An American Tale: More Growing Deficits, This Time It’s Our State Pensions

While a great debate rages in states across the country about benefits and pensions for state workers, existing pensions continue to fall short of their funding needs. State pension deficits increased 26% to $1.26 trillion in 2009, according to the Pew Center.

Here are some other eye-opening stats from the same report:

  • State retirement systems had 78% of what they needed to pay for promised pensions
  • Pension plans lost an average of 19% in 2009
  • The unfunded liability in state-run pension plans rose to $660 billion in 2009 from $452 billion in 2008
  • The biggest unfunded pension liabilities in 2009 were in Illinois, which had just 51% gap and West Virginia, with 56%. New Hampshire was 58% funded, while New Jersey and Ohio both had just two-thirds of what they needed.

The stock market’s recovery in 2010 and 2011 (so far) likely helped the situation, but that may have been offset by rising health care costs and underfunding of pensions. The poor fiscal situation of states highlights the destructive force that was the financial crisis of 2008-09. The question is where do they go from here? Whether the market continues to recover or not, states continue to cut back on benefits while at the same time underfunding their pensions systems. This situation will likely lead to more standoffs like the one Wisconsin experienced. It’ll also be something for the market to keep an eye on. As Meredith Whitney has so boldly claimed, the budget shortfalls states are facing could lead to a rash of municipal bond defaults.

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1 Response to State Retirement Crisis

  1. James says:

    Private sector citizens do not have the funds to pay for the fringe benefits promised to public sector employees by bureaucrats and politicians without further hurting everyone’s purchasing power and the economy as a whole which depends on their purchasing power. It is time for everyone to grow up and live within their means. It probably is not going to happen.

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