Everyone knows that Social Security and
Medicare are underfunded. They can only provide the benefits they
have promised by borrowing from future taxpayers who are obligated to
pay for them. And these programs will never be fully funded because
the obligations are growing faster than the public's ability to pay
for them. The nation's economic growth cannot keep up with the
politicians' promises. But what the public doesn't realize is that
beneath the gigantic funding gaps in these federal programs there are
several levels of promised benefits that are similarly underfunded.
These include state pension liabilities, city and county pensions,
teachers' pensions, and pensions of private corporations, including
those supported by the Pension Benefit Guarantee Corporation—which
itself is underfunded and has indicated it will likely have to go out
of business in a few years.
The PBGC has two kinds of programs:
single-employer (light blue on graph) and multiemployer (dark blue). Both have lost billions of
dollars, with the multi-employer programs being by far the biggest
losers. A report by the PBGC projects it will run out of funds in
2022, which is close to the Congressional Budget Office projection of
2021. The CBO projects that almost $9 billion of additional funds
would be needed to continue paying guarantees to multiemployer plans
through 2024.
A recent analysis by Wirepoints shows
that between 2003 and 2016, accrued liabilities (what the states owe)
grew more than 50% faster than assets in 28 states and more than
twice as fast in 12 states. New Jersey grew 4.3 times faster than
GDP, Illinois (3.32 times), Connecticut (3.18), New Hampshire (3.46)
and Kentucky (3.08). The Wall Street Journal notes that the
“solution” is always to raise taxes but “no tax hike is ever
enough because benefits keep growing faster than revenues...The only
salve to state pension woes, as the Wirepoints study notes, is to
reign in current worker benefits.”
The PBGC supports 71 penniless union
pension funds, but the payouts are often down to about one-third of
what the worker is due. The average Local 707 retiree was getting
$1,313 a month from the union pension fund, but the average monthly
take home is now $570.
Writing in the San Diego Union-Tribune, Dick Vorkmann says, “Almost every public pension plan is underfunded, some severely so. Illinois and Connecticut have only 35 percent of their liabilities covered by assets. San Diego County, at 77 percent funded, has an unfunded liability of $3.3 billion. San Diego City‘s unfunded liability is $2.1 billion....[Under the current system] taxpayers don’t pay for the cost of the pension being earned by employees in that year, but rather just pay for the pension checks to the current retirees who worked many years ago. Then, years from now, taxpayers will pay for the pension costs of the public employees working today. This is what our Social Security and Medicare systems have become: unfunded pay as you go plans. And that is why there is concern that these systems will go broke in the not too distant future.”
Dallas has the fastest-growing economy
of America’s 13 largest cities. Last year, the Dallas Police and
Fire Pension Fund paid out $283 million and the city put in just $115
million.
The Manhattan Institute’s Josh B.
McGee reports that teachers’ pension plans, which cover more people
than all other state and local plans combined, have at least a $500
billion difference between promised benefits and money set aside to
fund them.
