Moody’s Speaks Out on State Pension Reporting

Most states only have about 48 cents for every dollar in promised pensions.
Most states only have about 48 cents for every
dollar in promised pensions.
Image: Shutterstock
Recently, the United States government reported that states only have about 74% of funding for currently promised pensions.  While that may seem bad, three quarters of funding is actually a rosy view of the looming pension crisis.  Moody’s Investor Service, one of many groups and economists that are suspicious of government accounting, reported last week that states only have about 48 cents for every dollar they owe to future retirees. 
  
Teachers and public servants are facing the possibility of losing some or all of their pension if states are not able to close the nearly trillion dollar gap in funds.  What’s worse, some places like Alaska or Puerto Rico will owe more than their current GDP, much less bring in revenue.  The funds needed to fill out Illinois’ pensions are three times its annual tax revenue.  Even the best performing state, Nebraska, with relatively small state benefits promised, is still short of necessary funds.
  
Moody’s CEO, Raymond McDaniel, wants to make sure that the public is aware of the gravity of the crisis.  Many economists have been skeptical of state accounting practices, and these new methods are a better estimate of budget woes in our future.  The report compared current available funds, the debt of retirement accounts to state revenue, and retirement debt to state GDP.  Illinois, Alaska and Puerto Rico were the three most troubled areas when all of the data was taken into consideration.

  
Although many states have taken steps to alleviate the pension crisis, such as raising retirement age and cutting benefits, the data clearly shows that not enough has been done.  It is possible that the baby boomer generation will run pension funds dry.  It would be wise for state workers to start saving on their own for retirement, as government promises are increasingly unreliable.  Governments are not the only employers struggling with pension funds, however.  The declining coal industry is also struggling to pay the hefty medical care that retired miners often need.  As the industry continues to decline, Congress is considering setting aside funding for miners as well, leaving the question wide open as to how those funds will be paid for.

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