Walking the Public Pension Plan Tightrope
According to "States try to stem losses in public pension funds" (November 6, 2008), USA Today reporter Kathy Chu describes the precarious situation now faced by more than a few public pension systems. In order to stem the tide of mounting losses, due in part to market turbulence of late, states are "raising the amount that employers and employees contribute to traditional pensions" while others are freezing benefits or shrinking cost-of-living adjustments.
In addition, there is a certain "catch 22" reality that may render it difficult to solve structural financial problems any time soon. Plan participants suffer when a state or municipality's financial health takes a turn for the worse. On the other hand, funding problems with state/city/county pension plans can cause trouble for the public sponsor, resulting in a ratings downgrade and/or higher cost of capital and/or difficulty in raising external money. This is turn could compound problems with a public entity's ability to write checks to retirees. Chu lists economic changes being made by Wisconsin, Arizona, California, Baltimore and Iowa, respectively.
Having just gone through a U.S. presidential election with numerous discussions about red and blue states, maybe we should instead describe states, cities and counties as "in the red" or "more in the red." It is a sobering thought, isn't it?
