Progressivism “Disaster”: Emergency Meeting Called As $3 Trillion State Pension Crisis May Mean New Federal Bailout

Sep 5, 2010 9 Comments ›› Pat Dollard

The Hill:

Labor groups will be invited to the U.S. Chamber of Commerce to talk about an alarming shortfall in state employee pension plans that some believe could lead to a new government bailout.

Randy Johnson, the Chamber’s senior vice president for Labor, Immigration and Employee Benefits, told The Hill the total shortfall for state pension funds could run as high as $3 trillion.

A Chamber spokesperson said the event is in the early stages of development and that it is unclear which unions would be invited to participate or when the session would be held.

While the faltering economy has kept the dire state of pensions from grabbing many headlines, several experts agree that absent drastic measures these funds could be the next financial calamity that receives a government bailout.

An August report by the Kellogg Graduate School of Management at Northwestern University found government pension programs in as many as 31 states are headed for financial disaster by 2030 and that taxpayers will likely wind up paying for unfunded liabilities.

“Even if states uniformly eliminated generous early retirement deals and raised the retirement age to 74, the unfunded liability for promises already made would still be more than $1 trillion,” Kellogg associate professor Joshua Rauh said in prepared remarks.

“Assuming states don’t start defaulting on their bonds and other debts, it seems that taxpayers will be footing most of the multi-trillion dollar bill for the pension promises that states have already made to workers,” he added.

Pension funds suffered when markets fell during the financial crisis that began in 2008, and many cannot pay promised benefits to retirees. As a result, experts believe drastic cuts will be required unless the federal government steps in.

Stephen Rohleder, Accenture’s group chief executive of health and public service, told The Hill: “I think the next shoe to drop is going to be the pension funds.”

“I think you’re going to see wholesale cuts in terms of what’s being given to pensioners and to the recipients of pensions,” said Rohleder. “And this will trigger another round of fiscal crisis.”

The Chamber hosted a similar conference in July where union members complained about not having a seat at the debate table.

“They said, ‘you’re not giving us a fair debate,’” Johnson said. “So I think what we’re going to do is have another conference and give them their debate.”

The July conference looked at pension plans for state government employees that are underfunded. Johnson said that since nearly half of all union members work in the public sector, they will likely have a vested interest in the fate of these funds.

Business groups are worried the problems with the pension funds will lead to higher taxes on businesses.

“Because paying the piper is so far off, people aren’t paying attention to it; but it’s coming,” Johnson said. “It’s an alarming trend where our members are going to be facing higher taxes. And workers are not going to be immune.”