“Although the battle over a two-year budget deal and the national debt limit in Washington, D.C. has received the lion’s share of media attention recently, the bigger, more ominous threat facing taxpayers are unfunded liabilities-the difference between the net present value of expected future government spending and the net present value of projected future tax revenue, particularly those associated with Social Security and Medicare.
While federal unfunded liabilities are important, state-level unfunded pension liabilities also pose serious obstacles. In Texas, the recent 2013 Employees Retirement System (ERS) Valuation Report outlines the funding shortages this pension system faces and there is some indication it may be unable to pay beneficiaries by 2052.” [emphasis mine]
The article goes on to estimate total unfunded liabilities (i.e. future debt that must be reconciled) in the U.S. at $127 trillion, or $1.1 million per taxpayer-an amount that is roughly equivalent to 2x the world’s GDP. While unfunded liabilities in Texas are much, much smaller, they pose a major problem for the state’s future prospects. ERS, the state’s second largest pension fund, has unfunded liabilities totaling $7.2 billion, up from $5.7 billion the previous year while the Teacher Retirement System (TRS), the state’s largest pension system, has unfunded obligations totaling $28.9 billion, up from $26.1 billion in 2012.
At the core of these massive fiscal issues is the defined benefit (DB) system, which guarantees retirees a certain monthly payout without regard for how much they contributed, health of the fund, or market fluctuations. To say the least, the DB system is highly unsustainable for taxpayers and Dr. Ginn is right to be concerned about the future of both the U.S. and Texas economies.
To read more about a sustainable and proven alternative to the defined benefit system, please read this report.