So, I have discussed before – many times, actually, in the wake of Detroit and similar experiences with municipal finances across the country – that public pensions pose a moral, political and economic dilemma. They are underfunded (even many of the ones that aren’t in the news) and something, someday, is going to have to give on them. Either benefits will be reduced, even for those already retired, or the taxpayer, in some form or another, is going to have to bail out those pension funds. With regard to public pensions, it is as much a question of political will – and expediency for politicians – as it is a question of anything else (as I discussed here, nothing about recent developments makes me believe that the political arena really has the gumption to solve this and is instead likely to leave it to lawyers and courts to sort out), but this is not a new development at all. Leaving all names out of the story – including even of the state involved – I can recall how, regularly, right before a particular state held its gubernatorial elections, state employee unions would suddenly conclude negotiations with the existing administration over their new contracts, and would receive generous boosts to salary and benefits. This occurred decades ago -I didn’t think it was a coincidence then, and I don’t think it’s a coincidence now. Multiply that by a thousand fold when you think about the current public pensions in crisis (and the many more to come) and you understand both how we got in this mess and how unlikely it is that political entities will deal with the problem proactively, rather than wait until things are too bad to ignore, such as occurred with regard to Detroit.
Well, now it looks more and more like the same calculus is coming into play with troubled private pensions as well, with Congress looking at potentially allowing benefit cuts for retirees under troubled multi-employer pensions. Once again, you have underfunded pension plans and the question becoming whether to cut benefits or rely on the taxpayer to fix the problem, and I probably don’t have to tell you which approach seems to have the upper hand right now (if you can’t guess, read this article). There has been much moaning over the years about the death of the American pension, and this is just the latest act in that long running drama.