Pension Tsunami: Should the state of Illinois, with its dubious distinction of running the nation’s most poorly funded public pension system, encourage the federal government to provide financial assistance or even a massive bailout?
That is a basic, yet controversial question that few power brokers want to confront. Yet it is not going away, especially as the state pension crisis deepens, a BGA Rescuing Illinois report has found. Those who oppose federal intervention—and there are many—argue that Illinois alone must fix the pension disaster by using all the tools at its disposal, including raising revenue to fund pensions and reorganizing or cutting retiree benefits.
Other observers, however, contend that the funding shortfall for the state’s major pensions is so daunting, $111 billion and counting, that it surpasses Illinois’ ability to solve its own problems. As a result, some legal and financial experts suggest federal assistance may become a last-resort option just as it proved to be in 2008 for failing banks and domestic automaker giants.
How is California doing?
The figure, which captures unfunded retiree health care costs as of mid-2015, grew nearly $2.4 billion from the year before. It does not account for the impact of future inflation.
Still, the increase was $1.5 billion less than actuaries anticipated a year earlier. Insurance claims grew more slowly than expected, while changes to how health care is delivered and assumptions about long-term trends lowered the liability by $1.76 billion, actuaries estimated. Against that, demographic shifts among retirees added more than $250 million to the debt figure.
The state pays retiree medical expenses as they come up, about $1.9 billion for the current fiscal year. But since the pay-as-you-go policy doesn’t set aside anything for promised benefits, the annual costs increase as more state employees retire and need health care.
Remember this is state level employees only, and the vast majority of the labor costs occur at the local level. Nation wide these local governments will face a 25% budget hole with the mild recession.
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