Pension tidal wave to crash down on taxpayers

From Steven Malanga writing at the WashingtonExaminer.com:

Over time, elected officials came to promise workers politically popular new benefits without setting aside the money to pay for them, declared "holidays" from contributions into pension systems and changed their own accounting systems midstream to make the systems seem better funded — all just ways of passing obligations on to future taxpayers.

In the process, government pension systems became one of the chief vehicles that state and local politicians used to massage their budgets.

Now we face the consequences.

Our elected representatives played a deceptive game of chicken with pension funds.

And now the chickens have come home to roost.

Years of gimmicks and politically motivated benefit increases for government workers have left America's states and municipalities with pension funds that are short at least $1.5 trillion — and possibly as much as $4 trillion if the investment returns of these funds don't live up to expectations in coming years.

Just so the word "trillion" does not pass by too quickly, let's put it another way: That shortfall may be $4,000,000,000,000.

Taxpayers are already paying the price.

Since 2007, states and localities have been forced to increase annual contributions into pensions by $43 billion, or 65 percent, and in various places these rising payments are crowding out other government services or driving taxes higher or both.

Retirement debt has even played a crucial role in high-profile government bankruptcies — including in Detroit; Stockton, California; and Central Falls, Rhode Island.

Fixing the problem is proving expensive, and it won't happen quickly in places with the worst debt...

Around the country, taxpayers watching these scenarios unfold began demanding reforms and then electing politicians promising change.

But in many places, reformers woke up to a startling reality: Over the years, legislators and state courts had granted unusually strong protections to government worker pensions, far greater than the kinds of protections that private workers enjoy.

That has made cutting the cost of pensions difficult, if not impossible, in some places with the deepest debts.

In 1974, Congress passed the Employee Retirement Income Security Act [ERISA] to provide standards and protections for private sector pensions.

That law, and the way federal courts have interpreted it, protects the pension wealth that a worker has already earned.

But an employer has the right to change the rate at which a worker earns pension benefits in the future.

And so, an employer who is setting aside the equivalent of 10 percent of a worker's salary toward pensions could decide that next year it will contribute only 5 percent. The worker has the right to accept that, or find other employment.

But the ERISA law doesn't apply to state and local pensions...
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Link: http://www.washingtonexaminer.com/pension-wave-about-to-crash-on-taxpayers/article/2565965