Don’t Kick This Pension Can Down the Road

In FY 2010, the state of New Jersey, facing a $2.2 billion budget shortfall, adopted a series of measures to close the gap. The budget delayed $940 million worth of pension fund contributions for FY 2010. It also allowed towns and localities to defer their pension payments.

New Jersey was not alone. For years, state legislatures closed budget gaps by delaying payments to the state pension plan for teachers and other state employees. As state legislators, we had a technical, legislative name for this tactic: “kicking the can down the road.”

As today’s report from the National Council on Teacher Quality shows, the bill is now coming due. The report notes that although 22 states have made some changes to their pension plans, the problem of a pension shortfall is still looming on the horizon. “The pension crisis is real and systemic,” NCTQ noted.

We at Education Sector have been sounding the alarm on state pension liabilities for some time. In 2010, our Better Benefits report identified 47 states that owed more in pension liabilities for future retirees than they had on hand.

In the last three years, even in times of deep budget cuts, some states have taken action.  According to the National Conference of State Legislatures, 19 states have raised the contribution required by state employees to their pension plan. States have also raised the retirement age, cut or capped Cost of Living Adjustments, and changed the multiplier that determines the total amount of a retiree’s annual pension payment.

There are no easy answers to how we solve the nation’s looming crisis (one might almost call it a fiscal cliff, but that of course has been taken) in pension liabilities. As our look at the legal requirements for pensions, published earlier this year, noted, states face different legal constraints on what they can and cannot do.

But as state legislators prepare to gather in their state capitals next month, one thing should be clear. The days of kicking the can down the road are over.

Photo Credit: Kid Crave