Many of the remaining traditional defined-benefit
pension plans in both the private and public sectors are deeply in the
red. In the public sector, unfunded pension liabilities are
often blamed on such factors as the stock market drop. But, according to
the National Association of State Retirement Administrations and
National Council on Teacher Retirement, the problem is an aggregate
unfunded liability of nearly $296 billion for the 103 pension systems
and 127 total plans in their Public Fund Survey.(2)
The secure future baby boomers foresaw in their pension plans, Social
Security, and Medicare will ultimately be burdened by the sheer numbers
of retirees,(3) but these findings, as well as
recent private sector experiences, show that the failure to make
actuarially sound investments in long promised pension and health
benefits is at the root of most shortfalls.
American corporations argue that to compete against
foreign companies with low or no benefit costs and domestic rivals with
younger workforces and less generous benefit packages, they must reduce
obligations to their retirees. Only a third of companies with 200 or
more employees offered any health care benefits to their retirees in
2005, down from 66 percent in 1988. Small firms, which employ about half
of the workforce, rarely offered generous retirement benefits, and those
that still offer their retirees health insurance have been trimming the
plans.(4) Too, thousands of state and local
governments have promised generous health care benefits to millions of
employees when they retire, yet experts say that virtually none have
kept track of the mounting price tag.(5) Nationally,
health care costs alone now consume 16 percent of the gross domestic
product.(6)
Possible Implications for Kentucky:
Kentucky faces huge fiscal challenges if it is to honor the pension and
health commitments made to its public employees. While this required
state funding obligation may crowd out other funding in the future, the
longer the state forestalls meeting its obligations, the greater the
cost. Both public and private employers are struggling to pay for health
care benefits for current employees and retirees, a circumstance that
ultimately will compel a closer examination of how we finance health
care in the United States and how we can realize savings. As our
population ages, the demand for health care services will likely rise
though increased education and income levels among older citizens may
moderate these costs. The forceful clout older voters have historically
wielded, however, will not likely moderate. Instead, as the financial
fortunes of older citizens continue to be undermined, the pressure for
change will likely mount.
Contributing Writer Billie S. Dunavent
Sources:
2
National Center for Policy Analysis,
"Public-Sector Pension Crisis Worsens," Daily Policy Digest 30
March 2006.
3 "Attention, Baby-boomers," The Journal News
(New York) 3 Jan. 2006.
4 Eduardo Porter and Mary Williams Walsh, "Benefits
Go the Way of Pensions," The New York Times 9 Feb. 2006.
5 Milt Freudenheim and Mary Williams Walsh, "The Next
Retirement Time Bomb," The New York Times 11 Dec. 2005.
6 "AARP Reports on 50+ America: Health Care Indicators and Income on
the Decline for Mid-Life and Older Americans," American Association of
Retired Persons thematuremarket.com 2 March 2006.
