The US could be entering a future where mismanaged pensions could spell doom for taxpayers and state budgets. Many consider the pension problem as a ticking time bomb that could blow up in the near future if not attended to soon enough.
It is believed that pension boards and lawmakers have been presenting a false image about the security of pension funds based on cooked figures. As a result, the US could be looking at what the experts are calling a “fiscal time bomb”.
The growing resistance to pension reforms such as the suggested shift from defined-benefit programs to defined-contribution programs (401K) is only making the situation worse. As the situation worsens, it seems that pensioners cannot be guaranteed of a financially secure future.
A 2016 Moody’s Investor report presented the net pension liabilities that states could face based on calculations for the fiscal year of 2015. Researchers could only conclude that there was an impending pension crisis.
According to Marcia Van Wagner, a Senior Credit Officer at Moody’s, a majority of state pension plans were in bad shape. She justified her statement by citing the fact that the public pension plans' median return for the fiscal year 2016 was at 0.52% in comparison to an average investment return rate (assumed) of 7.5%.
She added that current projections would put ANPL growth at $1.75 trillion by the time audits for the fiscal year 2017 were carried out.
To put it simply, the pension debt will grow by 40% and the debt for each American will grow by 39%, bringing the figure from $3,889.23 to $5,399.26 per individual.
The PSERS (Pennsylvania State Employees Retirement System), for example, was predicted to enjoy a return of 7.5% on all investments made. However, in actuality, it only earned 0.4%. The simple conclusion is that workers in Pennsylvania will have no benefits to look forward to when they retire.
By the end of 2016, PSERS could only afford to pay about 59 cents for every dollar promised, forcing a per person debt of $1.523.44 onto taxpayers. It has only gotten worse in 2017. The state’s overall pension liabilities grew to $75 billion.
Pensions are paid to government workers as a retirement benefit. However, the catch is that there is a third party that the contract is forced upon – future generations who will have to pick up the load to ensure that senior government workers won’t be left struggling.
Since future generations cannot consent to this as they are either too young or have not even been born yet, lawmakers will have to take serious measures in order to defuse the bomb before it’s too late.