In Budget Crisis, States Take Aim at Pension Costs
June 20, 2010
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This is an article that very much goes with my post from yesterday - The Promises Must Be Broken - http://caps.fool.com/Blogs/the-promises-must-be-broken/409017. State governments are starting to accept the reality of the unsustainablity of the situation, but as I highlight below, there is still some major denial going on. This is a bad situation and it just keeps getting worse.
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In Budget Crisis, States Take Aim at Pension Costs
By MARY WILLIAMS WALSH
Published: June 19, 2010
http://www.nytimes.com/2010/06/20/business/20pension.html
Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits.
Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week.
“We can’t afford to deny reality or delay action any longer,” said Gov. Pat Quinn of Illinois, adding that his state’s pension cuts, enacted in March, will save some $300 million in the first year alone.
But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthrough reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect.
Lawmakers wanted to avoid legal battles or fights with unions, whose members can be influential voters. So they are allowing most public workers across the country to keep building up their pensions at the same rate as ever. The tens of thousands of workers now on Illinois’s payrolls, for instance, will still get to retire at 60 — and some will as young as 55.
One striking exception is Colorado, which has imposed cuts on its current workers, not just future hires, and even on people who have already retired. The retirees have sued to block the reduction. [My comment: I can't blame them. They are fighting to protect what they were promised. I would too if I were in the same position. But the money is fundamentally not there. This is a very bad situation inded]
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