Yesterday, the American Legislative Exchange Council (ALEC) published a startling new report on the deteriorating condition of U.S. public pension systems and warned that: “Absent significant reforms, unfunded liabilities of state-administered pension plans will continue to grow and threaten the financial security of state retirees and taxpayers alike. The fiscal calamity could be far deeper and [more] prolonged than the Great Recession.” [emphasis mine]
ALEC’s warning of a coming calamity, as detailed in the report Unaccountable and Unaffordable, has to do with the big and growing gap between public pension promises and the funding needed to make good on them.
Nationally, ALEC estimates that—using realistic actuarial assumptions—unfunded liabilities for state-administered public pension plans now exceed $6 trillion in total, an increase of $433 billion compared to 2016. On a per capita basis, those liabilities translate into a debt of $18,676 owed by every American.
In Texas, the report found that unfunded liabilities totaled $397 billion this year, up from $360 billion owed in the prior year. By way of comparison, that’s the second highest total nationally, behind only California who is approximately $988 billion in the red. On a per capita basis, unfunded liabilities in Texas are the equivalent of every man, woman, and child owing $14,260.
But while these figures are concerning, they are not surprising. The debts piling up are the product of a poor system—the defined benefit pension plan—that is plagued by problems of affordability, sustainability, and predictability. It’s critical that big, long-term changes are made soon, lest taxpayers and retirees alike get crushed under a mountain of empty promises.