Public Pensions Press Budgets PDF Print E-mail
Written by By Lynndee Kemmet, Visiting Research Fellow   
Friday, 12 June 2009 00:00

Taxpayers are already bailing out auto companies and banks and, before this recession is over, they’ll be bailing out public pension plans. These plans are losing money by the millions and billions—a $1 trillion loss combined—but that doesn’t mean retired government employees will see their pensions shrink.

Unlike many private sector retirement programs that can disappear with companies or 401(k) plans that can dwindle to nearly nil, public pension systems are defined-benefit programs. By law, governments must guarantee public retirees a fixed, lifetime income.

The costs to state and local governments are tremendous. But until the stock crash, returns on investments kept most funds flush with money. Today, however, it’s the losses that are adding up as both stock values drop and real estate ventures crash.

According to the National Institute on Retirement Security, from 1993 to 2006, public employees contributed 10.8 percent of pension fund balances, state and local governments contributed 19.6 percent, and the market and other investments 69.6 percent. The market is no longer picking up its large share, and that means that to meet future fund obligations, either public employees or state and local governments will need to contribute more.  

Public employees are well-educated, well organized, and with easy access to policy makers. States and municipalities might make some headway in modifying pension systems to reduce costs, but the bottom line is that taxpayers had better brace themselves.

This commentary is based on a longer article in the latest issue of Research Reports, available free to AIER subscribers or $2 for non-members. Also in this issue:

  •  Ask the Expert: Stimulus for Accountants. This article grapples with the tax implications of a $250 stimulus payment to Social Security recipients.
  • At the Crossing Point: Research Fellow Walker Todd writes about a convergence of trends that may signal the Federal Reserve has gone too far.

To subscribe to AIER Research Reports, please become a Sustaining Member of AIER. Membership starts at just $39 per year.

Already a member? Keep your eye out for the June 15 issue of Research Reports hitting your mailbox soon.

 

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Comments (3)
Government Pensions
3 Monday, 22 June 2009 17:29
Greg Ammons
Some people never cease to amaze (e.g. "Dicky Boy"). Maybe in Illinois retirees are "paid to be idle after retirment." The same is not the case in almost any other state or Gov. retirement system. Your statements and beliefs are incongruous. ..So its not okay to retire at 50 and draw a pension for 30 years for being idle??? But, if one "waits till he/she is 65...and then lives for 30 more years", its OK? Sounds like "Dicky Boy" made the wrong career choice.
gov't pensions
2 Friday, 12 June 2009 16:37
Dicky boy
In Illinois gov't employees get 75% pension after 30 years no matter what their age. For instance a school teacher right out of college at age 23 can retire at 53 with the 75%. With the strong possibility that this retiree will live another 28 to 30 years it is inconceivable that we can afford to pay people to be idle for that length of time. In the few private plans that remain normal retirement is at 65 and if the employee leaves early the plans usually have an actuarial reduction. 30 years and out is OK if the pension doesn't start until age 65.
Good grief
1 Friday, 12 June 2009 12:14
KatyDee
There must be another planet we can move to.

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