Tuesday , 20 October 2020


COVID-19 Will Turn State Pension Problems Into Fiscal Crises

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…Many of the public employee pension plans run by states don’t have enough money in them to make upcoming pension payments to retired state workers….The problem has been a long time coming, but COVID-19 may make it into a crisis.

…In 2017, total pension liabilities for all states was US$4.1 trillion and assets were $2.9 trillion. That means collectively, state pension funds would need $1.3 trillion to be able to make payments to everyone promised a pension. This represents about 9% of the U.S. GDP.

How did this happen?

  • Pension fund investments often did not meet the return targets due to poor financial management; some states like California budgeted for unrealistic  8.25% returns, when the market was only delivering 7% returns.
  • The Great Recession and the slow recovery substantially affected the return on investment to pension funds, too
  • and key assumptions by state analysts about how long people would live (and thus require pension payments) as well as future costs of living were often flawed.

One comment

  1. Its a fallacy to think that government employees ‘contribute’ to their own pension plans. Where do you think their salaries come from? It only taxes that are funneled to either salaries or the ‘contribution’ portion of an employee pension. So that aspect makes no difference if there are less workers on the government payroll, all their costs come out of taxes.
    As for the idea that politicians will cut back on services like education, I think not. They will simply raise taxes.
    What this is going to lead to is a migration from the states with the highest and rising taxes to the ones with lower rates of increase. You can predict where these will be based on the included map and it will become more prevalent if the predicted rise of remote working increases, giving people more flexibility to move.