Pension Time Bomb Is Ticking!
While few politicians wish to discuss it publicly, the unfunded liability of our state pension systems (PSERS and SERS) places the Commonwealth in dire financial jeopardy that must be dealt with immediately to prevent the condition from metastasizing into a terminal financial outcome.
Admittedly, it is a complicated problem difficult for many people to completely understand. The average citizen is unaware of the true danger the state is in because of an unsustainable pension system.
What do I mean in layman’s terms? Let me offer just a few numbers. The present value of the benefits payable to current and future retirees, reaches nearly $144 billion. That figure includes payments expected if current workers retire on time and live to average life expectancy.
But let us include a hypothetical example just to provide context. If we actually halted the retirement system today and provided just the benefits earned by retirees and current workers in PSERS to this date the figure would drop to $118 billion. Ok you ask, how much have we allotted to pay these benefits?
Well, that depends on how you look at it. If we calculate what experts call an actuarial value of assets, meaning the amount currently available to pay benefits, then we would have $88 billion available. So, you can see in the best case we are about $30 billion short.
However, if we calculate at the actual current market value of those same assets we have only $72 billion, which is $46 billion short.
So, if we stopped the retirement program today and cashed in the assets on hand, the taxpayers would have to come up with $46 billion to pay the bill.
By the way, this does not count the roughly $15 billion in retiree medical benefits for state employees, not including teachers in our 500 school districts. Municipal pensions across the state are in a similar condition.
Remember how much trouble we had balancing a budget this past year with a $4 billion deficit?
You are beginning to see the problem.
We must take action soon. If we would have acted just three years ago, the shortfall would only have been $11.3 billion. The deficit figure grows quickly the longer we wait.
What can we do?
Top priority is to stop ignoring the problem. Partly because it is complicated, and partly because it is politically difficult to solve, leaders have mostly avoided discussing it or continuously postpone solutions with band-aid fixes.
After facing the problem squarely, we need to offer true solutions that can be debated publicly. Most of the alternatives are tough to swallow. It is imperative that the state switch out of a defined benefit program to a defined contribution program similar to a private sector 401K.
Taxpayers definitely refuse to pay for the old system any more.
The switch will take care of the long term problem but will not pay for the $20 billion shortfall for benefits earned by current members. We will all have to put our heads together to solve this problem.
One thing is certain, the longer we wait the worse it becomes. As mentioned earlier, had we dealt with this problem just three years ago we would be facing less than half the current deficit. If we wait three more years the $30 billion deficit could easily grow to over $60 billion.
Taxpayers demand their elected leaders tackle the tough issues. It is time we bring the full attention of the legislature and the public to this issue. The sooner the taxpayer becomes engaged on this problem the faster the legislature will move.