State and local governments already owe $4.4 trillion in pensions fund obligations. This is growing daily.
The one sector of America that is dominated by unions is government. Unions have disappeared in the rest of the economy.
There can be no doubt that state and local governments will not be able to pay all of these obligations. They will default. The only questions are these: Which states? Which cities? When?
On January 10, 2012, Senator Orrin Hatch (R-Utah) released a report on state and local government defined benefit pension plans in which he detailed the risks associated with the nation’s $4.4 trillion public pension debt, calling the defined benefit pensions structure “inherently flawed in the state and local government setting.” This massive liability is dangerous for taxpayers and could mean future cuts in services, reductions in benefits, higher taxes, or a combination of these less-than-desirable options.
This is now inevitable. It’s not a matter of if. It’s a matter of when.
One good indicator of a sound government pension plan is whether the funding ratio of pension assets to liabilities is at least 80 percent. According to the Government Accountability Office, 40 percent of state and local government pension plans had already dropped below the 80 percent funding level before the 2008 recession began. Post-recession data now shows that 62 percent have dropped below the 80 percent funding level threshold and that 11 states are projected to exhaust all of their pension assets by 2020. These unfunded state and local pension liabilities are also damaging to the federal government’s credit rating, as a federal bailout becomes increasingly inevitable.
The retirees get defined benefits. So, no matter how the pension funds perform, the governments must pay the benefits. But they will not be able to.
Georgia, Indiana, Oregon and Rhode Island (as of July 2012) have introduced mandatory “hybrid” plans for new employees, under which employees are required to participate in both a defined benefit and a defined contribution plan. In some cases, these pension requirements do not apply to public school teachers as their powerful union lobby has managed to receive special carve-outs. For example, even though Michigan state employees are placed in defined contribution plans, their teachers are placed into hybrid plans.
Despite the best efforts to increase the level of employee contributions paid toward pensions, raise the retirement age, or modify the annual cost of living adjustment, failure to make a complete switch from the traditional defined benefit plans to more stable defined contribution models guarantees that underfunded pensions will continue to be a growing problem for state and local governments.
States and cities are not telling this to the voters or retirees. It is being swept under the rug. The politicians prefer to kick the can, and this means that they prefer that voters be kept in the dark.
These faulty accounting practices are misleading and dangerous. While the rate of return on pension assets fluctuates, the fiscal promises made to state and local employees do not. Moreover, taxpayers, who foot the bill for pension funds, do not have a clear picture of how indebted they are to state and local governments. Increasing pension fund transparency will make lawmakers more accountable to taxpayers and compel elected officials to deal with the reality of their fiscal crisis.
This will not change. The public will learn that their elected representatives have made contracts with union members that guarantee far higher taxes and reductions in services that voters expect.
There will be a default at some point. Then the retirees who expected monthly checks will not get them. If they get any checks, they will be smaller than promised.
If they sue, the cities will declare bankruptcy and start over — without pension obligations.
I live in MI where we still have full-time goverment…we asked when the automotive first started having problems to go part-time they our full-time goverment voted this down an gave themselves a raise we do not fill we r in this recession together…now we get crapy teachers but full-time goverment…a governor who raised income 4 goverment help an cut women an children off help…I relize on paper this is the biggest cuts to help but the rich get richer an the poor get poorer…with knowing who is honest an who is not…I know people who when they paid 4 services they were dishonest in the end when u needed it…this health care is silly even our state an federal goverment does not want this y should we the people get less after all we pay u to get the best…the problem is we the people r the biggest cost on paper…so to cut us looks better than cutting goverment…all the lying cheating stealing shame on allowing this to happen
I compare the government pension system to what has happened to the "SOCIAL SECURITY" fiasco, and theft thereof !!!!!
The union bosses don't care about the tax payers………….so long as they get their monies. Maybe they think the money will magically appear on trees????????
There was a time when UNION'S were useful, now all they are is a way for a chosen few to get rich and collect government officals to put in their pockets! It's not about the union worker with the exception fo "Make Sure The DUES Go UP!" Thats all the bosses care about! The last union I was in (IBEW) at the union meeting the president got a check the V P got a check, the secertary got a check and the bookkeeper got a check. The union business was always thrown aside! When we threatened to strike! The president of the union told us that it wasn't "Sacantioned" and all employee's would be FIRED by the company and they (union officals) would stand by the company! What good is a union that stands with the company instead of YOU? It was no more than Mafia style strong arm tatic's! Oh!, and don't forget union dues come out of your paycheck every month and there's nothing you can do about it!
Our California Gov. was funded completely by the unions. Now California is the state that has the biggest problems in the country. Not the golden state anymore. Higher taxes and companies not building here has more people moving out than ever. We have the highest illegals here and the most social programs. Note this state and others in deep water have been controlled by the democraps forever. Democraps want to keep you down at the same time they promise to help you. Somehow they keep fooling the por and the blacks and the illegals. Obummer is living proof of that. Nancy Peloci is perfect example of that in California, harry reed in Nevada.
With the baby boomers retiring at over 10,000 per day the pension funds don't have much time left.