State public pensions are in dire straits without substantial reforms.
As noted by a State Budget Solutions (SBS) report, the nationwide sum of unfunded pension liabilities totals a monstrous $4.1 trillion. To put things in perspective, that amount: is nearly 25 percent of total U.S. national debt; is bigger than the 2011 GDP of every nation on Earth except the U.S., China, and Japan; is tantamount to each American owing $13,000 of additional debt; and, if stacked in one-dollar denominations, would reach 278,251.3 miles into space.
SBS’s staggering conclusions were reached using a more realistic rate of return: “the liabilities, which indicate the strain the pension payments are placing on state finances, were calculated according to the 15-year Treasury bond yield of 3.2 percent (as of August 21). It’s a far more conservative rate of return than the 7-to-8-percent over 20 or 30 years commonly used by most governments in their financial reports.”
Identifying the problem is just the first step in this equation however.
Enacting meaningful pension reforms—as we’ve discussed previously here, here, and here—is crucial to getting a handle on the problem, both in Texas and around the nation. While there is no definitive timeline for how long it will take to enact meaningful pension reform, facing the wrath of thousands of disgruntled taxpayers and state public employees is almost assured if pension reform continues to be set aside on state and local government agendas.
Being able to sideline pension reform is getting harder thanks to the efforts of conservatives around the nation, including the American Exchange Legislative Council, who recently issued a new report for legislators giving them a comprehensive guideline for responsibly reforming their retirement systems.
Financial analysts and other observers have voiced their concern about this looming issue for a while. Now is the time for elected officials to engage in immediate action to reduce the magnitude of unfunded liabilities.