This is picking up more attention, but the fix is likely to be more costly to tax payers.
Governments’ generosity could have serious consequences for taxpayers and pensioners. Some states — including Illinois, Indiana, Michigan, New Jersey, Ohio and West Virginia — have troubled retirement systems that may require huge tax increases, spending cuts or even defaulting on promised benefits. The U.S. government has a bigger unfunded liability for military and civil servant retirement benefits ($4.7 trillion) than it does for Social Security ($4.6 trillion).
The pension gap will continue to widen because governments pump far more money into employee pensions than companies do. Civil servants earn an average of $12.38 an hour in benefits, about $5 an hour more than private-sector workers, according to the Bureau of Labor Statistics. The difference was just $2.70 an hour in 1995.
In December: USA Today: States struggle to cover retirees
State and local governments are starting to take aggressive steps to reduce the enormous cost of providing health care benefits to retired teachers, police officers, firefighters and other public workers.
As 43 state legislatures prepare to convene next month, governments are cutting benefits, setting aside money to cover future costs and shifting expenses to the federal Medicare program. The efforts are the first to address a liability of more than $1 trillion for providing medical care promised to about 25 million current and future retired state and local civil servants.
In November: NY Times: Once Safe, Public Pensions Are Now Facing Cuts
Years of supporting court interpretations have enshrined the view that once a public employee has earned a pension, no one can take it away. Even during New York City’s fiscal crisis 30 years ago, no existing pension promises were reduced.
But now a number of state and local governments are quietly challenging those guarantees. Financially troubled San Diego is the highest-profile example, but a handful of states, cities and smaller government bodies have also found ways to scale back existing promises and even shrink some current payments.