State pension funds heading for insolvency

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State pension funds heading for insolvency

Wednesday, November 26th, 2008 | Economics, Social Security |

Analyst: State of New Jersey Is Insolvent. And most state pension funds and therefore states will be insolvent if something doesn’t change. The analyst’s recommendations:

States have to dramatically raise taxes to pay for unrealistic promises

A voluntary reduction in pension promises will be negotiated

Cities, municipalities, and states declare bankruptcy or find other ways to default on promises made

Choice number one will lead to a taxpayer revolt, and choice number three will have every school district and government employee hopping mad. Yet, to expect number two to happen voluntarily is highly unlikely. The most likely thing that will happen is governors like Corzine will put the problem off, just as Schwarzenegger has done in California, and in fact every governor in every state has done.

Pension problems are rampant. Most states were way underfunded even before this 45% selloff in the stock market. I selected New Jersey to look at because they have disclosed the numbers as well as the future assumptions.

The point of pension crisis has now arrived. Yet few even recognize it and fewer still want to propose doing anything about it.

Just as long-term healthcare benefits and pensions for the autoworkers union broke Detroit the public service employees unions are liable to break cities and states.

This, by the way, is also where Medicare is headed. Social Security with its fixed payout could still be saved, but Medicare is almost certainly hopeless in its current form. The system will break once the boomers retire - their retirement will reduce the money going into the system and their declining health will increase the money going out of the system.

The system only really works when the population is steady or growing. Throw in a shrinking working population or a growing retirement population due to greater longevity and the ratio of workers to retirees becomes unsustainable.

Hat tip to Instapundit.

1 Comment to State pension funds heading for insolvency

rich
December 22, 2008

Number 2 is the only realistic possibility, along with a semblance of number one. Retirement ages will be extended, employee contributions will be larger, states like Colorado, with low property and income taxes will see tax increases, early withdrawal years will be expanded, and new state employees will be offered fewer benefits. States like NJ will no longer offer lifetime medical care.

Taxpayers will not sue the state. Employees will not sue the state. The State is protected against Federal lawsuits by the 11th amendment of the US Constitution. Citizens cannot sue in state courts, because judges, who are also expecting pension benefits, will have conflicts of interest. The can can probably be kicked down the road far enough to withstand a ten year depression.