How can states fix $1 trillion in underfunded pensions?

[unhappycamper]

http://www.csmonitor.com/Business/Tax-VOX/2014/1007/How-can-states-fix-1-trillion-in-underfunded-pensions



State governments face at least a $1 trillion gap between pensions promised to their employees and retirees and the funds set aside to cover these liabilities. There are ways out of the pension pickle, but none of them are easy.

How can states fix $1 trillion in underfunded pensions?
By Tracy Gordon, TaxVox October 7, 2014

Last week’s federal court ruling in the municipal bankruptcy case of Stockton, CA highlighted the enormous challenge faced by local governments with underfunded public pensions. There are ways out of this vise, but none are easy, and all are fraught with risks.

State governments face at least a $1 trillion gap between pensions promised to their employees and retirees and the funds set aside to cover these liabilities. Add the nation’s cities and counties and you get another roughly $500 billion in unfunded promises. Of course, state and local governments don’t have to pay this tab immediately, or even over the next few years. But in places like Michigan’s shrinking cities or in towns that were casualties of California’s housing bust, pensions (and retiree health care costs) are already squeezing budgets for valued services like police, fire, roads, and libraries.

Pensions and other retirement costs pose special problems for local governments. While moving across state lines is a drag (and so called tax migration is likely overstated), taxpayers can easily bail out of cities in fiscal trouble by moving to the next town (assuming it is not also in dire financial straits). At the same time, people moving into a fiscally troubled community may demand lower home prices to offset anticipated higher future tax bills, shrinking the property tax base and making the pension funding problem worse.

As municipalities confront these legacy costs, the paramount question is: Who will be left holding the bag? In a federal court last week, we got a sneak peak at the answer. Echoing findings in Detroit and Central Falls, RI, Judge Christopher Klein ruled that Stockton, CA could cut pensions as part of its bankruptcy resolution. Note that he did not require the city to do so, and it has no plans to take such a step. Klein’s decision is both big and small.

[Sancho]

1. Raise taxes! Quit spending money on stupid investments (charter schools, international excursions).

What is amazing to those of us who have been state or local employees for our entire careers is simple: we already took lower salaries and bargained those retirements.

The governments usually use the retirement money as general revenue, gave tax cuts, built ball stadiums, and sometimes used tax dollars for parties and planes.

Now the crazies have been loading up with right-wing judges so they can get away with "bankruptcy" of our own government! It's ok to impose state mandates that cost money to local governments, but not ok to abandon them to pay for pensions?

Don't fall for it!

[kelly1mm]

2. The number one reason, while dispite faults, I prefer 401k/403b type programs. nt