Follow us on facebook


The States’ Unfunded Pension Nightmares | Stock News & Stock Market Analysis

Pensions: The stock market boom has helped everyone, right? Nope. States’ pension funds have nearly $4 trillion of stock investments, but somehow haven’t benefited from soaring stock prices.

A new report by the American Legislative Exchange Council (ALEC) shows why this is true. It notes that the unfunded liabilities of state and local pension plans jumped $433 billion in the last year to more than $6 trillion.

X Let that number sink in for a moment: It’s one-third the size of the U.S. economy, equal to “a whopping $18,676 for every man, woman, and child, or nearly $50,000 for every household in America,” as The Daily Signal notes.

It’s a massive amount of money, in short. All because state officials and politicians never had the gumption to tell public-employee unions “no” when they asked for even more. So their gilded pension plans will soon start bankrupting states, such as Illinois and Connecticut, which now can’t pay their pensions.

Politicians for years made backroom deals that taxpayers weren’t privy to, giving away the store to buy labor peace and to keep their own political careers going. Taxpayers were on the hook, but never had a place at the bargaining table.


No Hidden Agenda: Get News From A Pro-Free Market, Pro-Growth Perspective


The ALEC numbers show that only 33.7% of what the states, cities and counties own to current and future pensioners is funded. That is, for every $3 they owe, they only have $1. There’s a name for that: insolvency.

How can this be? Public pension managers, always under intense political pressure, routinely overestimate their returns on their investments, while underestimating the spending. The result: A massive unfunded liability.

It’s true, some states are better than others. The five best states — Tennessee, Indiana, Nebraska, Wisconsin and North Carolina — all owe “just” $7,601 to $10,944 per state citizen. The worst are New Mexico, Illinois, Ohio, Connecticut and Alaska, which owe from $28,119 per citizen to $45,689 per citizen.

But even calling some “better” and others “worse” misleads, since they’re all at risk of bankruptcy.

Taxpayers around the nation will soon start to get nasty surprises as their politicians inform them that they owe this money, and by law can’t avoid paying it. They’ll be hit by major tax increases to pay for retired bureaucrats.

States have gone down this path to fiscal ruin based on the idea that, if things get bad enough, Washington, D.C., will bail them out. That would be a huge mistake, because it would only invite more of the same irresponsible behavior.

But they need to remember: Washington has its own fiscal nightmare, called entitlements. Social Security and Medicare are currently underfunded by an estimated $57 trillion.

Already, the Daily Signal notes, there’s a movement in Congress, spearheaded by Rep. Brian Babin, R-Texas, to prohibit the federal government from bailing out the states. It’s tough love, but it’s the only real way to get the states to behave responsibly.

RELATED:

Don’t Bail Out Failing States Like Illinois 

Forget Puerto Rico, What About U.S. States’ Soaring Debts? 

Will Looming State And Local Government Pension Crisis Bankrupt The U.S.? 

 


Click here for more Commentary and Opinion from Investor’s Business Daily.

Want to make more money in the stock market? Start with IBD University.

 

Source link

No comments.

Leave a Reply