By Craig Eyermann
The pensions of public employees, the people who work for state or local governments, are in trouble.
After years of promises by politicians—who, like public employees themselves, have done little to provide funds to pay for the generous retirement benefits—many public employee pension funds are now at increased risk of insolvency as the economy faces turmoil from the coronavirus lockdowns.
This long-festering problem has become so bad that some pension analysts think that several large public employee pension funds will become insolvent by 2028, if not sooner.
That fate will come despite the intervention of central banks, who flooded markets with funds specifically to avoid pension losses.The Organization for Economic Co-operation and Development (OECD) recently published a report showing how pension funds in OECD countries recorded a massive loss of approximately $2.5 trillion during the stock market meltdown in February through late March. Shortly, after that, central banks intervened with monetary cannons to rescue stock markets and other financial assets to avoid pension returns from going negative.
Although the stock market has since gone on to a remarkable recovery, thus limiting the damage that pension investments in stocks may realize, the economic damage from the lockdowns will weaken state and local government’s ability to fund public employee pension funds through their constriction of ordinary commerce.
There are three potential ways to solve this problem. First, the politicians and public employees could face up to reality and acknowledge their failures to fund their retirement benefits by cutting their promised benefits to sustainable levels.
Second, politicians and public employees could demand that taxpayers in their states and districts bail them out by paying higher taxes so the public employees can keep their generous pension benefits.