So you think Social Security is facing an unfunded liability crisis?
Well, you’re right. Unfortunately, it’s far from the only unfunded liability crisis looming out there. Many of the states and thousands of cities, counties and teachers’ defined-benefit pension plans are also facing a crisis.
Just consider:
- The Washington State think tank the Evergreen Freedom Foundation recently wrote, “In the last five years, Washington has seen its unfunded liability for pensions increase dramatically. According to the June 2006 Comprehensive Annual Financial Report, the total unfunded actuarial liability has seen an eight-fold increase from $778 million to $6.4 billion.”
- From the Wisconsin Journal-Sentinel: “Governments in Wisconsin face costs of around $17.4 billion beyond what they have already set aside to pay for pensions and other benefits promised retirees, according to a study by the Wisconsin Policy Research Institute released today.”
- Finally, a news story from Oklahoma reads, “Oklahoma’s seven state pensions are in crisis, carrying more than $10 billion in unfunded liabilities, according to a report released Friday by the Oklahoma Pension Oversight Commission that calls on Gov. Brad Henry and the Legislature to take action.”
A speaker at a National Conference of State Legislatures’ conference last year took solace in the fact that states were only facing about $400 billion in unfunded liability.
Ironically, a decade ago the states’ pension funds looked pretty good—so good that Congress debated wrapping them into Social Security as a way to help shore up Social Security’s long-term finances.
It didn’t have to be this way. Galveston and two other Texas counties opted out of traditional Social Security more than 20 years ago and set up a defined-contribution plan. Instead of sending their 12.4 percent payroll tax to the government, county employees put that money in their own personal account.
The funds are controlled by a financial management firm, which has ensured average annual returns of about 5 to 6 percent. And most middle-income workers are retiring with about twice the income they would have gotten from Social Security.
So while Social Security, state and local and teachers’ defined-benefit pension plans are drowning in unfunded liability, thousands of Texas county workers are retiring in style.