Public pensions are in bad shape. Eric Boehm reports:
According to a new report from the Pew Charitable Trusts, the states collectively carry more than $1.4 trillion in pension debt—and only four states have at least 90 percent of the assets necessary to meet their long-term obligations to retirees. The Pew paper, which is based on states' 2016 financial reports, shows that pension debt increased by about $295 billion since the previous year, making 2016 the 15th consecutive year in which state-level pension debt increased.
The really scary part is that pension debt keeps increasing despite the fact that taxpayers' contributions to state-level pension plans have doubled as a share of state revenue in the past decade. Also worrisome: Pension plans are chasing increasingly risky investments. The gap between returns on safe investments and state pension plan investment assumptions was the highest in decades, the Pew researchers note, leaving pensions more vulnerable to market volatility and raising concerns that another downturn could drive already deeply indebted systems over a cliff.
Switching from a defined-benefit to a defined-contribution system is part of the solution, writes Boehm:
Adequately funding pensions is expensive, and politicians would rather spend limited tax dollars elsewhere. […] Removing politicians from the equation is a major benefit of transitioning away from traditional defined benefit pension plans and into 401(k)-style plans where individual workers control their retirement accounts. That also helps get taxpayers off the hook for having to make up the difference when markets or political will falls short of pension plans' expectations.
[Eric Boehm, “America’s Sinking Public Pension Plans Are Now $1.4 Trillion Underwater,” Reason, April 13]