How state pension funds affect the rest of the state and government
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Jeremy Hobson: As States around the country grapple with huge budget deficits, many are looking to their pension funds for cash. This week, the board of California’s pension fund voted to make employees put more money toward their retirement and cut contributions from the state. New York’s governor meanwhile reportedly wants to slash benefits for future workers to save almost $100 billion over the next 30 years.
For more on all this, let’s bring in Marketplace Economics Correspondent Chris Farrell. Good morning.
Chris Farrell: Hey Jeremy.
Hobson: So how much trouble are these pension funds actually in?
Farrell: Some state and local governments are in real trouble. You look at Illinois, and boy, that unfunded pension liability is a disgrace — it is a crisis. But you take a step back, you look nationwide, you say, look, we have a long-term funding problem. We need to put more money into these pensions. It’s not a crisis; it’s a problem that needs to be dealt with.
Hobson: And should the existing workers and retirees that work for states be concerned that the state will go after their benefits that they’ve already been promised?
Farrell: Well to the extent that the states can, they’re going to. It’s very hard to change promised benefits for existing workers. Now in some states, you can and there’s some very clever lawyers — very high-priced lawyers — that have come up with ways to modify Consumer Price Index adjustments and things like that, but new workers? They’re going to get the brunt of the hit.
Hobson: They’re going to get the brunt of the hit. So what can be done to shore up the finances in the long run?
Farrell: In the long run, employees are going to contribute more; the employers, the local governments contribute more. And they’re going to have to be conservative in their forecasts. They’ve been building in these forecasts saying that we’re going to be making 8 percent on our money. No, you’re not. You might be making 4 or 5 percent of your money. But here’s my concern, Jeremy: if the pension benefit is less generous, are you going to attract as good a worker? We’re talking about teachers, policemen, firemen. Are they going to come in and do these jobs? That’s the real concern about this whole discussion.
Hobson: Marketplace economics correspondent Chris Farrell, thanks so much.
Farrell: Thanks a lot.
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