The St. Louis Post-Dispatch has a fabulous editorial on the looming crisis in paying public pensions with a special focus on the problems facing Illinois:
For decades we’ve known of the looming crisis in Social Security; the first of the baby boom generation now has begun collecting benefits. Most of the rest of the 76 million Americans born between 1946 and 1964 will join the line over the next two decades.
What’s only recently become apparent, though, is that the rest of the retirement security net has become shredded as well. In many states, public-sector workers have come to realize that cash-strapped governments haven’t been making sufficient annual payments to pension funds.
Thirty states owe more money than they have in the bank. The National Association of State Retirement Administrators estimates the shortfall at $430 billion, or about $3,800 for every U.S. household. That could be very low; if states were to default on the debt, the underfunding could be as high as $1.21 trillion.
This is really must reading.
One thing the Post-Dispatch doesn’t mention: the situation in Illinois is somewhat different than in other states due to provisions in the state constitution. Barring constitutional amendment, the state doesn’t have the power to revise the lavish pension commitments it’s made over the years without the prudence to put aside money to pay them off. Barring what I see as the impossibility task of amending that provision in the state constitution, paid they will be and the cost will affect nearly every other task that state and local governments here seek to undertake.
The editorial may be factually correct that the average state pension is around $17k per year, but the sympathies it seeks to generate are exaggerated in this regard. State workers are generally eligible for a pension after 8 years of service. The early retirement incentives over the last ten years have increased the numbers of state workers retiring in their 50s at 80% of salary, plus 3% annual COLA.
It’s hard to generalize because there are different pensions and different situations, some of which are not to covet, but I expect that as demographics change, we’re quickly going to see average state pension payouts double and triple.