Another year has gone by and, as with the federal government and its entitlements, most states have made no major progress in disarming the ticking financial time bombs in their public employee retirement systems. If anything, low interest rates and a highly volatile stock market have made these systems even shakier than they were before. A good example is the Virginia Retirement System. It was once one of the better-run funds, with enough in reserve to fulfill more than 80 percent of its future obligations to retirees. But now VRS is deep in the hole, according to the Virginia Joint Legislative Audit and Review Commission. Between 2009 and today, the fund’s deficit — the difference between the retirement benefits promised to state employees and the money available to pay for them — has risen from $12 billion in 2009 to $20 billion. The fund can now cover only 69 percent of what it owes retiring teachers and 71 percent for other public employees.
This is partly because of the global economic gale, but also because the General Assembly, with Gov. Bob McDonnell’s approval, lowered state contributions to the pension fund to balance Virginia’s last biennial budget. Last week, McDonnell vowed to return $2.2 billion — the largest contribution to the public employee pension fund in Virginia history. But even that huge sum amounts to just about 10 percent of the amount needed to fully fund VRS. Beginning as soon as 2014, the system will lack the funds to pay retirees fully as promised.
Things are even worse in Maryland, where the unfunded pension liability is $17 billion. In 2009, Maryland’s state retirement system was already floundering, able to meet just 65 percent of its obligations. A Northwestern University study by economist Joshua Rauh projects that Maryland’s system will be completely busted and out of cash by 2024. Both Virginia and Maryland are now below the 80 percent funding level that is considered healthy as millions of baby boomers have begun to retire.
Government must keep the promises it makes to its workers. But it should also mind the cost of overpromising, and of hiring too many government employees to do what the private sector can often do better and cheaper. Overburdened taxpayers should not be forced to shoulder the burden of a state employee benefits system far more generous than what most private-sector workers receive.
Wisconsin Gov. Scott Walker was vilified when he required unionized public employees to contribute 5.8 percent more toward their own retirements. But it’s either that — or massive tax increases for everybody else.
