Deferred Pension Payments Enable States to Panic Later

The Wall Street’s Gina Chon reports that states are trying to close mammoth budget deficits by “kicking the can” on payments to public employee pension funds. Deferred pension payments are another category of bad government where Illinois ranks as a national leader:

Illinois, with the worst unfunded pension liability in the country, has failed to pay its full annual contribution for its five retirement systems in the past few years. Democratic Gov. Pat Quinn had proposed that the state pay $300 million less than the total $4.5 billion estimated contribution to the state’s pension systems for the next fiscal year. The state last month passed bills to scale back pension benefits; the measures are expected to save $100 billion over several decades, according to legislators.

A fairly obvious problem in Illinois and many other states is that politically there’s no incentivenot to defer pension payments. Deferred pension payments mean fewer unpopular tax increases and spending cuts. And if pension funds become insolvent in a few years, well, that problem is for a whole new group of elected officials to solve.

One solution might be a bill that makes pension payments more like national entitlement programs such as Medicare and Social Security, so states have no discretion in how much they annually allocate. It seems, though, that many governors and state lawmakers prefer to lower pension payments as a “break glass in case of emergency” way to balance a state budget.

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