The year-long economic downturn and historic financial crisis on Wall Street could threaten the fiscal health of the trillion-dollar state employee pension system.
If the stock market does not rebound soon and the recession stretches into next year, as many analysts predict, state leaders may be faced with difficult choices to shore up pension funds that have lost billions of dollars in value since January.
Among immediate options: postponing retirees' cost-of-living increases. Other, long-term choices include cutting benefits, increasing employee payroll contributions or relying on more taxpayer dollars to make up for the losses.
“Those are all definitely things to be considered,” said Terry Slattery, president of the National Association of State Retirement Administrators and executive director of the Public Employees Retirement Association of New Mexico.
Any policy choices would be agonizing not only for retirees but all state taxpayers. Employees contribute to state pension funds as do government agencies through tax dollars. About 20 million current state and local government employees and 7 million retirees, ranging from teachers to police officers to office workers, are promised pensions, according to a recent GAO report. Benefit checks total about $150 billion a year.
Paying retired public employees already is one of states' growing costs, so the market falloff could not come at a worse time. Thousands of aging baby boomers are claiming retirement benefits, and many states are issuing pension checks for longer periods because people are living longer. On top of this, many states are struggling to finance Medicaid, education, transportation and other programs while their tax revenue is shrinking.
Read the full report Market Slide Batters State Pension Funds on Stateline.org.