Looming Crisis: State Budgets Soon to Be Under Siege

By Ed Easterling, Crestmont Research

There are numerous problem-solving and decision-making processes in the military and civilian sectors. All of them start with a common first step: Identify and define the problem. Get the first step wrong, and there is no chance for success.

Public employee retirement systems across the nation have a major problem. Yet the issues are not isolated to investment portfolios managed in the basements of cold, dark government buildings. Nor is the impact limited to retirees or near-retirees of those programs. The tentacles reach out to the taxpayers that backstop those plans and the people served by the government workers in those plans.

Pension plans are simple programs. They are set-up to receive contributions from employers and employees to be distributed later back to the employees as retirement benefits. But the plans expect to distribute more than the contributions that go in—and it almost always can. Down in the basement, the pension plan invests the contribution money over many years to produce a return. The return and the contributions combine to meet the obligations promised to the workers upon retirement. However, if that combination of funds is insufficient, then the taxpayers are expected to make up the shortfall.

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