With few exceptions, state and local pension funds are woefully underfunded. Five heavily populated states—California, Illinois, Ohio, New Jersey, and Texas—collectively lack $431.5 billion; money that won’t be paid out to hopeful pensioners. That’s according to those states’ own accounts published in a 2012 Harvard University study that was led by former Assistant Treasury Secretary Tom Healy.
And the real numbers may be even worse: Accounting for current low interest rates, Healy and his coauthors estimate that the true extent of underfunding is $1.26 trillion.
When your tab is floating in the nebulous zone between $431.5 billion and $1.26 trillion, does the exact number really matter? Either way, you can’t pay it. Even wrapping your mind around numbers that large is difficult—like trying to visualize distances described in light-years.
In an understandable move to protect their interests (read: limit future tax liability), corporate heavyweights including Dow Chemical, ExxonMobil, Google, and Walmart sponsored a three-day judicial conference on public pension reform at George Mason University School of Law last month. One headline from the conference agenda: “Bankruptcy: The Nuclear Option.â€
If the “nuclear option†scares you, it should. Still, some cash-strapped state governments are pushing for it.
A Political Solution Is Unlikely
The upside of a republican form of government—like we have here in America—is that it’s difficult to get much done. That’s also its downside. There’s a lot of political maneuvering among pensioners, union representatives, taxpayers, corporations, and politicians themselves, but very little progress has been made to find a long-term solution to the pension problem.
The union position is simple. The public employees they represent upheld their end of the bargain, and now it’s up to the legislators to find the money to uphold theirs.
