Warnings about looming public pension disasters have regularly cropped up since the 1950s, pointing to problems 25 years or more down the line. To politicians and union leaders, the troubles were someone else’s predicament. Then crisis fatigue set in as the big problem remained down the road.
Today, the hard stop is five to 10 years away, within the career plans of current officials. In the next decade, and probably within five years, some large states are going to face insolvency due to pensions, absent major changes.
There are some reassuring facts. Many states are in pretty good shape, and many others still have time and resources to fix things. There is no serious chance of retirees being impoverished. What’s in doubt is whether states will pay promised benefits to retirees with large pensions or significant outside income or assets. Also, although most of the problem is created by politicians and union leaders cutting deals to promise future unfunded benefits to keep voters happy, there are also plenty of stories of politicians and union leaders risking their careers to stand up for honest pensions.
It’s important to distinguish between actuarial problems (the present value of projected future benefit payments exceeds the funds set aside to pay them plus projected future contributions) and cash problems (not having the money to send out this month’s checks). Actuarial problems are always debatable and usually involve the distant future. Cash shortfalls are undeniable and immediate.
New Jersey has $78 billion in its state pension fund, which is supposed to cover future payments with a present value of $280 billion. But that latter number is a projection. You can ignore it if you wish, or hope that soaring investment returns or a pandemic among retired workers will fix it. A more certain figure is that the $78 billion represents less than seven years of required cash payments.