Over the weekend, the New York Times sought to educate us about the joy in store for us in the future, in the form of the current unfunded liabilities of various pension and benefit plans.
Since 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.
The total came to about $178 million, or more than double the city’s operating budget. And the bill was growing.[...]
Duluth’s doleful discovery is about to be repeated across the country. Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so. For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets – out of sight and out of mind – those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
This is the third time this year that the subject of unfunded pension/benefits liabilities has bubbled to the surface. We first heard about it in the form of the Social Security debate (Social Security has an unfunded liability in the order of $3.5-$4.0 trillion), sometimes with an asterisk pointing out that the unfunded liability for Medicare is actually much worse — in the $25-$30 trilion neighborhood.
Then we’ve had some airlines dump their pension plans to a federal program, shedding themselves of billions of unfunded liabilities (including United’s pension plan underfunded to the tune of $9.8 billion).
And now we have this NYTimes article, which includes an estimate by an actuary at Mercer that the total unfunded liabilities faced by state, county, and municipal government entities in the U.S. could approach $1 trillion.
God only knows what the surprises remain lurking in the books of corporate America.
I spent quite a bit of time early this year ranting about the need to beef up Social Security, balancing future funding with future promises to pay. Unsurprisingly, I was ignored. Sadly, this is a problem that’s probably going to get much worse in the next decade or two…just long enough for the remedy to be tremendously painful to implement.
