Public Pensions

Public Pensions – Underfunded and Unsustainable

Public Sector

Public pension funds across our country are in severe difficulty, some even catastrophic. In many instances, funds which are constitutionally required to pay out benefits are becoming actuarially incapable of doing so. This creates a serious problem for state, county and municipal governments.

The public sector is faced with two dilemmas that are placing increasing pressure on their budgets - the spiralling costs of current payroll expenses and funding of future retiree benefits. Tax revenues, in many cases, are not adequate enough to offset these expenses.

Current payroll costs are increasing because employees are remaining in the workforce longer, for a variety of reasons. Among these are longer life expectancies, inadequate planning for retirement, a desire to remain active, or other reasons. The results are higher current payroll costs.

Public employers face several issues concerning the funding of pensions. Several statements from the Governmental Accounting Standards Board (GASB), in particular GASB Statements No. 25, 27 and 43, addressed the issue of future liabilities and how they are reported and recognized. Additionally, GASB 43 requires transparency in accounting for this underfunding problem. These require states to include pension funding shortfalls in financial statements. The consequences of persistent and significant shortfalls which continue to go unaddressed may lead to hardships, including credit downgrades, and other penalties.

The solution can no longer be increased taxes. It is patently clear from economic history that the simplest solution - raising taxes - may be counterproductive and may only add to the problem. Other potential solutions to this issue, if implemented, would have serious unintended consequences. New and creative solutions are needed to solve these problems, and we are confident that we have just the Solution.