State Legislatures Underfunded Pensions
By Kevin Hart
If Lady MacBeth were observing the current political discourse on public employee pensions, she might be inclined to quip that some elected officials seem to be protesting too much.
As states grapple with unfunded pension liabilities, many elected officials are calling the plans unaffordable and relics of the past. Meanwhile, many of these same politicians were instrumental in creating the unfunded pension mess by refusing, year after year, to adequately fund their states’ pension systems.
And while some want to blame pension funding shortfalls on stock market losses from the current recession, the problem goes back much further in many states. New Jersey, for example, is currently claiming an unfunded pension liability of $54 billion, leading Gov. Chris Christie to call for cuts to public employee pensions.
But the truth is, for each year since 2002, New Jersey lawmakers have refused to contribute the recommended level of funds to the state pension system. Last year, Gov. Christie elected to skip a $3 billion payment, nearly guaranteeing that the gap will grow.
The pension shortfall is largely man-made. In fact, within the past decade, New Jersey had a pension surplus.
“For much of the last decade and a half, the state of New Jersey has failed to make any contributions to the pension funds, allowing a large deficit to grow,” New Jersey Education Association President Barbara Keshishian pointed out in a statement this fall. “Over that same period, teachers and other school employees contributed billions of their own money into the funds, and even increased their contributions in a good faith effort to stabilize the pension funds.”
Many pension opponents advocate a 401(k)-style “defined contribution” investment vehicle for retiring public employees. These types of defined contribution plans are built on the premise that workers should invest while they are young, in order to benefit from compound interest and investment gains. The $5,000 you contribute today could become $50,000 decades later. By the same token, if you don’t contribute the $5,000 now, you need to contribute $50,000 later to ensure you have enough retirement income.
That’s why it’s ironic that some of these same defined contribution proponents refused to contribute a smaller amount to their state pension systems when they could – now, they need to fund a much larger amount.
It’s a national problem – elected officials in several states refused to adequately fund their states’ pension systems. Illinois, for example, has a pension system underfunded by $90 billion thanks to years of skipping annual contributions or borrowing money to make the contributions. The situation is similar in many other states.
“Rather than cut services, [Illinois] usually chose to underfund its employer contribution,” according to a fact sheet from the Illinois Retirement Security Initiative. “Over time, this chronic failure to make the full employer contribution is the primary reason for Illinois state government’s predicament today, facing the worst unfunded pension liability in the country.”
Put simply, political decisions caused the current pension funding problems in many states, and now public workers feel like they are being unfairly blamed and asked to foot the bill.
“It goes on and on and on,” said retired educator Kathy DuPuis in a recent discussion on public employee scapegoating on NEA’s Speak Up For Education & Kids Facebook page. “Those that serve the public are again blamed for the economic ills.”