Unfunded liabilities for public pension plans have been growing quickly over the years. Today, a number of states have public pension debts of hundreds of billions of dollars and they are not pulling in enough money to pay those debts in the time frames promised. A recently conducted study found that the state and local government pension plan debts total roughly $4.7 trillion.
This enormous debt is the result of government officials promising state and local government workers generous defined-benefit pensions that will provide them with a substantial income for the rest of their lives. However, contributions and earnings from investments have not kept up with the promises made, resulting in inadequate funds in the pension plans to pay all of the promised benefits. Because of the way these public pension plans are structured, taxpayers are often on the hook for the unfunded liabilities in the pension plan.
Data shows that 64 percent of government pension plans failed to contribute enough money to pay off their debts from 2001 through 2013. California seems to be in the worst position, with unfunded public pension debts of between $550 billion to $750 billion. Illinois and New York each report roughly $300 billion in unfunded pension debts. Ohio, New Jersey, and Texas each have about $200 billion in unfunded pension debts.
By lowballing contribution amounts and failing to properly manage the pension plans, the state and local governments have effectively pushed the cost of the public pensions onto younger workers and future generations, while allowing retirees to receive considerable benefits without having to pay the full cost of them. If the way that these pension plans are funded are not reformed, the debt load will fall on the backs of younger workers who will not receive the same benefits that the retirees will enjoy.
The younger workers did not agree to this arrangement and many do not feel that they should be responsible for solving a problem that they did not create. Having to pay off these debts in the form of higher taxes and higher pension contribution amounts for younger workers would reduce their chances of upwards mobility and reduce their quality of life. If the situation is not resolved soon, it could mean significant financial difficulty for a younger generation to pay for the comfort of their elders.
Source: IRA Market Report