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Bill for public pensions quickly coming due

Post by Kim Bradford on March 2, 2010 at 7:13 pm with 2 Comments »
March 2, 2010 7:13 pm

This editorial will appear in Wednesday’s edition.

Round about the time that state legislatures hope to emerge from their recession-fueled budget crises, another wallet-socking wallop could await them.

That’s the conclusion of a recent study by the Pew Center on the States, which has been issuing increasingly urgent warnings over the last couple of years about the long-term costs of public sector retirement benefits.

In 2007, the center estimated that states had committed to collectively spend $2.73 trillion on pensions, heath care and other retirement benefits over the next 30 years.

Now the center is back to warn that the liability has grown to $3.35 trillion – and that states are falling far short of socking away enough money to meet their obligations.

Pew estimates the gap between what states have promised and what they have on hand is at least $1 trillion. The real number is likely higher, considering the center’s latest report did not fully account for investment losses in late 2008.

The shortfalls threaten to blow big holes in state budgets at a time when they are least able to compensate.

The Pew Center generally gave Washington good marks, although that grade is somewhat misleading. The sum of the state’s pension obligations matches the sum of its contributions. But that’s like saying a neighborhood’s income matches its collective bills. Just try convincing the guy across the street to make your house payment.

Washington’s pension programs are in a similar situation. They have enough money in the aggregate, but aggregates don’t count. The state’s newer retirement plans have plenty of cash on hand while the unfunded liability in two of the state’s oldest pensions is $5.9 billion and growing.

Lawmakers have been falling short in their promises to make plug the gap. In 1989, legislators committed to making up the difference by 2024. Last year, they rejiggered that plan to help squeeze $429 million in savings from pensions. Lawmakers bought down their immediate obligation in exchange for a higher and longer repayment schedule.

It wasn’t the first time. Even before the Great Recession hit, state lawmakers were shorting pension payments. The Pew Center report dinged Washington for contributing just 37 percent of what the pension system needed over the preceding five years. Only one other state made less effort to keep its pensions whole.

The Washington state actuary’s office warned last fall that the state’s oldest pension plans could run out of money in 2015 unless the Legislature doubles its contribution in the budget cycle that begins next year.

Finding the money won’t be easy, but lawmakers have little choice. If they don’t heed the advice, the state could end up paying benefits out of pocket – an approach that would prove a huge drain on the general fund and the critical services it supports.

Washington’s day of reckoning is nearly at hand.

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Leave a comment Comments → 2
  1. Hardly a day of reconing at hand. A bit sensationalistic are we. I would at least expect so much from an editorial.

    I have read that report now for the last week. Washington does grade above average in the funding provided to the pension funds. In addition, Washington has already passed major public pension overhaul a few years back.

    The new plan which state employees newly hired on the job receive is a 50% defined benefit plan and a 50% investment plan. This is a major change from the other plan(s) in effect which are 100% defined benefit plans.

    So now, we have 50% less the cost of pension benefits for those who started working in 2004 or so.

    If you really want to get onto the bandwagon about pension costs, why don’t you look into the cracks and crevices of the Judicial and Legislative system retirement benefits. Those remain some real sweetheart deals to the judges and legislator’s fortunate enough to be vested in them.

  2. PumainTacoma says:

    The public sector has been feeding off the trough for years. HR claims govt. jobs are similar to the private sector when times are good so “give us more money.” Yet, those jobs are elevated above any job classification in the private sector (Directors, Supervisors, etc…) inflate their essential functions of their job to claim more money. Same goes for educators who try to cash in on TRI (time, responsibility, incentive pay) before they retire to “cash in” on the govt. “cash cow” retirement system. Private sector employees do not get “gleaming” titles, work over 50+ hours without overtime, work weekends and holidays for their business and customers. After the end of the pay period I get a check . The company does not owe me anything after my work is complete for the week. Why does the public sector have the attitude that “they owe me.” No one owes you. Get real. The state does not owe any employee. You have health care, dental, get a pay check. The state needs to do away with a retirement system and go with 401K. Make employees pay for their retirement system. There is no welfare program here. I am tired of hearing about all these retirements packages. People retire from the state, get a pension, then work at another govt. facility during this “supposed” retirement and the cycle continues. The mentality of the state workers is ME ME ME. Sorry but I am not paying for any more govt. bailouts. Make the employees pay for their own retirement. I owe them nothing! Besides I pay $20 a day for just “property taxes” in Tacoma. For what? Streets are bad, schools are terrible, police are driving cars home to Gig Harbor, and I am paying for property taxes for the sure joy of living. Stop the chaos in Olympia. Kick the “ME” Democrats out before they spurge again on my dime.

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