What do most states have in common with public pensions? The states have unfunded obligations to their state employees of near $1 Trillion. Prior to the 2008 fiscal crisis, investment funds for public pensions were earning 7 to 8 per cent on their investments. Today the investments are lucky to get 3 per cent. Most public employees belong to unions, which wield great power when pension reform is considered. Cost of living increases only exasperate the growing problem. Many states can do nothing about these vested retirements laws. Some, like New Jersey and Rhode Island, have successfully suspended cost of living raises. This alone reduced their obligation of unfunded pensions by $100 billion. California has recently and successfully reformed their public pension to the saving of 55 billion dollars over the next few decades. Twenty one states have pension funds that are not fiscally sound. According to Morningside, a financial entity, pension funds need to be funded more than 70% to be fiscally sound. Ohio and Mississippi pension costs are more than half the states gross production. Illinois, Connecticut, Hawaii, and Massachusetts have the largest unfunded pension obligations per capita. Illinois, a super strong union state, is in dire straits, with unfunded pension liabilities estimated to be between 100-250 billion dollars. Illinois is funded to only 43%.
Reform efforts have focused on eliminating cost of living clauses, reducing the pension amounts to new hires, and introduction to 401(K) type pensions, much like the corporate world. Kansas and Alaska have introduced 401(K) type pensions where the employee contributes 10% or more to their pensions. These reforms will eventually narrow the gap of unfunded pensions and make them fiscally sound. Detroit, Birmingham, Alabama, and Stockton, California all went bankrupt citing pension obligations as a major contributing factor. Illinois, are you up next? Posted every Wednesday at least.
