Slow Motion Car Crash: Problems With Government Pension Funds are Severe

FT reports:

Analysis of 56 US public pension schemes has found that their funding deficits are set to grow by hundreds of billions of dollars this year, forcing some of America’s biggest states and cities to cut spending and raise taxes.

Moody’s, the rating agency, said lacklustre returns in 2015 and 2016 will put severe pressure on the health of US public pension plans and force states and cities to act in order to plug their pension funding gaps.

Tom Aaron, an analyst at Moody’s, said the funding deficit — the difference between the assets a pension fund has and what it has to pay out to current and future pensioners — will grow substantially this year.

“Closing that funding gap continues to be big challenge for the sector,” he said.
In some of the worst-funded schemes, including the teacher pension plans in Illinois and Kentucky, the funding gap has grown to almost eight times what current teachers are paid, according to Moody’s.

Amin Rajan, chief executive of Create Research, a consultancy, said: “[Public pension plan] deficits are going from abysmal to worse. We are witnessing a slow-motion car crash.”...

Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania, said public pension plans face “grave difficulties”.

“I do believe that US cities and towns will continue to suffer, and there will be additional bankruptcies following the examples of Detroit and the cities of Vallejo, Stockton and San Bernardino,” she said.