Viral Stash Financial News

Ravi Nagarajan submits:

The steep market declines over the past year have left many state and local governments struggling with severely underfunded pension plans. The Wall Street Journal reported Monday that several states and municipalities are considering extreme measures to address pension shortfalls. For example, New Jersey is considering a bill that will allow municipalities to defer payment of half of their annual pension bill for a full year. Pennsylvania’s state employee and pubic teachers pension funds have warned that employer contribution rates could approach 28% of payroll starting in 2012. Detroit’s police and fire pension plan may require contribution rates of 50% of payroll starting in 2011.

Roger Lowenstein wrote about the pension crisis in his recent book, While America Aged, which I reviewed in February. Lowenstein discussed the New York City transit pension problems of the 1970s and the San Diego city pension debacle earlier this decade. It appears that the same movie is playing again with the state and municipal governments discussed in the Journal’s article. Since retirement benefits for most public employees are guaranteed by law, very little flexibility exists for politicians hamstrung by years of habitual under funding. The best they can do is attempt to constrain benefits for future employees. Current employees are grandfathered into pension plans based on already negotiated terms which are, for the most part, set in stone.

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