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Pension crisis a ticking time bomb for states

Everyone seems to be hunting for the right way to describe the mess state pension systems are making of the already shaky economy.

Not just in Utah, where the mess could be described as the state trying to grasp onto a branch as it slides down an icy hillside, but in Illinois, where the state has hit an iceberg of titanic proportions and is sinking with little hope in sight.

Or in California, where the state is still $20 billion short of a balanced budget and no one has challenged the statement by retirement actuary Ron Seeling, who said a year ago, "We are facing decades without significant turnarounds in assets, decades of unsustainable pension costs."

Or in Indiana, where according to the American Legislative Exchange Council Web site, state Sen. Jim Buck said, "The underfunding of public pension plans has become the 900-pound gorilla in the area of state budgets."

It's so big that if Carl Sagan were still alive he would have trouble wrapping his mind around the billions and billions of dollars involved.

To use another metaphor, it's like a ticking time bomb.

And you thought the economy was recovering.

Utah state Sen. Dan Liljenquist uses similes of his own. "This is like a chemical spill," he told me the other day. "The first thing you have to do is contain it. Then you need to clean it up. This is a disaster that's already happened. We'll be in cleanup for a long time."

The disaster that happened is the financial collapse of 2008. State pension plans had budgeted for healthy returns on their investment portfolios, conditioned by good times. Some states counted on earning 8 percent or more. Even Utah, which has among the best-managed retirement systems in the nation, budgeted for 7.75 percent.

What Utah got was a 22.3 percent loss. That translates into $6.5 billion in unfunded liabilities. And even though 2009 gave the fund a healthy 13 percent rebound, that paid for only that year's growth plus the interest the fund originally was expecting to earn on the $6.5 billion it lost.

Liljenquist has a comparison for that, too. "It's like if you're running a race and you fall down," he said. "You have to get up and run that much faster than you ran before just to get to where you once were."

That isn't going to happen. Liljenquist says the state would need 20 straight years of double-digit returns to recover the loss. The retirement system brought in actuaries to lay it all out. Even if the economy soars, the state would have to dramatically increase its contributions to the retirement system to make up the difference. That means less money for things such as hiring new teachers or funding other state programs. It could mean more money from your pockets.

Liljenquist is proposing a couple of bills, SB43 and SB63, to tackle the problem. They would end the practice of retiring from public service and then being hired back at a lower wage, allowing people to collect a salary and a pension. And they would reduce the pension benefits for all new employees hired after July 1, 2011.

Instead of setting aside 14 percent of a worker's salary every year for a defined pension, he would set aside 8 percent that a worker could put in a 401(k) plan or a combination of that and a smaller defined pension.

No one is jumping up and down with glee over this plan. But no one has offered anything better. The Utah Education Association says things aren't really so bad; the Utah retirement system is well-funded.

That's true, but by 2015 it won't be, and that could hurt the state's AAA bond rating and end up costing you, the taxpayer, even more.

It's that ticking time bomb simile again. Or, as Liljenquist puts it, the state can't "kick the can down the road" the way other states seem to be doing.

Sooner or later, the can will explode.

Jay Evensen is editor of the Deseret News edito?rial page. E-mail: even@desnews.com. Visit his blog at deseretnews.com/blogs.