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States taking on unaffordable pensions... sorta

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June 24, 2010 – Comments (0)

According to a NYT article, In Budget Crisis, States Take Aim at Pension Costs:

"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."

That's good news. The article lists the recent steps taken by Illinois, Missouri, New York, Virginia, and Mississippi. However...

"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."

Two implications: 

1. Depending on where you live, get ready to see your state taxes eventually rise.

2. If you plan on receiving a pension -- public or private -- the prudent assumption is that you may not get as much as you're currently promised. 

Robert Brokamp is the senior advisor for the Fool's Rule Your Retirement service. 

 

 

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