Sunday, May 11, 2008

Local government pensions may get into big trouble with demographics

Local governments and school systems do not have to meet federal ERISA rules as do private corporations in running their defined benefit pension funds, a major story on the Front Page of the Washington Post says today, May 11. The front page story is “Growing Deficits Threaten Pensions: Accounting Tactics Conceal a Crisis For Public Workers”, by David Cho, link here. Public pension funds do have a lot of leeway in their accounting practices. The result may be much bigger taxpayer bailouts in the future, particularly in Virginia and Maryland. The District of Columbia’s funds are said to be in better shape. Warren Buffett is quoted as having said, “fuse on this time bomb is long.”

Much of the problem is demographic, with longer life spans now averaging 79, and somewhat longer for women and often for surviving spouses. Will state and local governments have to raise retirement ages, and would unions let them do it out of the “common good”? Don’t count on it.

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