The Next Crisis: Pensions

Megan McArdle alerts us to an upcoming crisis:

According to the Pension Benefit Guaranty Corporation, which regulates and insures pensions, the total deficit in private plans covering about 34 million workers was a little over 10 billion as of September 2008.  That’s almost certainly multiplied quite a bit since then.  But the current underfunding in public plans, which cover about 22 million workers, seems to be something north of a trillion dollars.  And they’re not insured.

The funds that are responsible are a different sort of headache; they’ll be slapping heavy levies on local school districts and governments to shore up their capital.  That will be a nasty burden on strapped local governments, particularly in places that are already in decline.  My mother’s hometown in Western New York now sees its local fiscal picture vary heavily with the financial industry 350 miles away because of teacher pensions.  In good years, the market booms, tax revenue soars, and not only does their mandatory pension contribution fall, but the state often offers extra help out of the tax windfall.  In bad years, the state aid disappears, their mandatory contribution goes up, and the senior citizens on fixed incomes start assembling pitchforks and torches for the march on city hall.

The full article can be found here.

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