Today’s news brings word that public and private pensions are having more problems, the one-two punch of an increasingly volatile stock market and the Fed’s two-year freakishly low interest rate guarantee making a bad situation even worse.
State Treasurer Gina M. Raimondo (D) said that per capita, Rhode Island has the nation’s largest unfunded pension liability. But if the Ocean State’s pension problem is among the country’s most severe, so are the remedies being considered to solve it.
An ongoing pension reform effort is likely to result in reduced benefits for 51,000 public workers and retirees. Officials are pondering lowering retirement payments, replacing part of the guaranteed pensions with 401(k)-type accounts, and sharply reducing generous cost-of-living increases enjoyed by retirees. The Rhode Island legislature is expected to consider changes next month during a special session.
Until recently, most states, including Virginia and Maryland, have attacked their pension problems by cutting benefits for new hires while preserving retirement packages for current employees. Others have rolled over their pension debt by taking out loans or papering them over with what some have called unrealistic projections about investment earning and life expectancy.
But with states facing, by one estimate, a combined $3 trillion in unfunded pension liabilities and the economic downturn continuing to dampen government tax revenue, states are beginning to make changes once considered unthinkable — such as cutting pensions for people in retirement.
The “pension envy” felt by many people in the country should begin to lessen in the years ahead as early-retirees from the public sector are slowly squeezed in a multitude of different ways, none of which will be fun. Then, again, what they have will still be far better than that which is available to most retirees and aspiring retirees in the private sector.