America's state pension plans are only 36 percent funded. Forty-seven states have less than 50 percent of the funds needed to pay their current and future retirees. It's time for Congress to act — not by bailing out these states, but by empowering them to fix their own problems.
America's state pension plans are only 36% funded. Forty-seven states have less than 50% of the funds needed to pay their current and future retirees.
Even relatively well-off states such as Wisconsin, South Dakota and North Carolina have unfunded per-capita liabilities that stretch into the thousands of dollars. The picture is much bleaker in states such as Connecticut and Illinois, which have unfunded per capita liabilities that reach $24,000 or higher. The actuarial unfunded liabilities for Illinois's pension plans stood at $111 billion for fiscal year 2015, according to government estimates.
These problems have been building for decades, and, if left unaddressed, they will continue to grow.
Some states have tried to fix the problem. Former Illinois Governor Pat Quinn signed reforms to the pension funds into law in December 2013. These reforms were intended to place the fund on a path to solvency by 2042. However, the Illinois Supreme Court overturned the reforms as unconstitutional.
One promising alternative would be for the federal government to empower states to reform their own insolvent pension or health plans by preempting state laws that prohibit the state from making reforms to laws that they created in the first place. Under this system, the federal government would allow those laws passed by state assemblies to reform pensions to take effect.
I suggest that Congress create a "Proceeding to Protect Essential State Actions" as a new Section 113 of the U.S. Bankruptcy Code. This would not allow states to declare bankruptcy, as some have suggested. Rather, it would allow them to reform their pensions after the legislature has voted to do so.
Under such a law, states would have the opportunity to solve crises attributable to pensions, even if existing state laws prohibit changes to such obligations...
