In states, cities and counties across America, public sector pensions and retirement benefits are massively underfunded.
Public Sector Pensions: How Well Funded Are They, Really?
The accounting rules followed by U.S. public sector pensions are more forgiving than those required for private sector pensions or public sector plans in other countries. So-called "fair market valuation" more fully reveals the value of public sector plan liabilities and shows that the average public employee pension plan in the United States is only around 41 percent funded while total unfunded liabilities as of 2011 are roughly $4.6 trillion.The public sector pension situation is indeed a financial crisis, an un-detonated financial bomb that will hit taxpayers very hard.
States Facing Public Pension Crisis
In California, the public pension crisis has resulted in several cities filing bankruptcy, here.
However, the situation is far worse than underfunded public sector pensions. Many states, cities and counties have ignored the pension crisis for years and actually and have heavily borrowed to cover current public sector pension benefits by issuing pension obligation bonds. That's another debt that gets transferred to taxpayers.
San Bernandino, CA became the 3rd California city in 2 weeks to file for bankruptcy protection and it's got $49 million in outstanding pension obligation bonds, in addition to $200 million in general obligation bond debt that it can't pay, here.
Illinois has horrific deficit and debt problems that include unfunded public pension liabilities of $86 billion on top of the $26 billion in outstanding pension obligation bonds, here.
States, cities and counties have been kicking the public sector pension timebomb can down the road for years and years.
As tax revenues shrink because of the ailing economy and the habit of issuing more and more debt to cover existing debt obligations expands, states and municipalities will become so debt ridden that they will lose their ability to borrow their way out of a crisis.
This nightmare can only end very badly - bad for taxpayers, bad for bondholders and bad for public sector employees who expect to receive those pension and retirement benefits.