States all over the country are running into problems with the retirement funds setup for their employees. CNNMoney.com recently posted an inn-depth article on how this problem is playing out now in New Jersey. You can find a segment of the story below, or read the full post here.
For years, states all across the country have been starving their retirement plans. Here's a look at how the crisis is playing out in New Jersey, where the bill is coming due, and the state doesn't have the money to pay it.
Even as the nation's economy is showing some tentative signs of bottoming out, another calamity looms: the public pension bomb.
For years, states nationwide have shortchanged the retirement programs that cover teachers, police, and other public employees; now the stock market plunge has wiped out billions of dollars from already underfunded plans. California, New York and Illinois are among the states scrambling to plug multibillion-dollar holes in their pension systems. The growing obligations raise the specter of higher taxes, diminished services, or even another round of costly federal bailouts.
"States have long needed to reduce their unfunded liabilities, and widespread investment losses have made it even more necessary to put money in," says Lance Weiss, author of a 2006 Deloitte study of state pensions. "But the market crash also means there's less money available to use for contributions. Everything is coming together to create a crisis."
To better understand this ticking time bomb it helps to focus on a single state, and New Jersey makes a compelling case study. For one thing, its situation is dire. In June 2008 the state estimated that the plan - one of the nation's largest, covering teachers, state employees, firefighters, and police - had $34 billion less than it needed to meet its obligations. Since then the market value of the plan has dropped from $82 billion to $56 billion (a new estimate of underfunding is due in July).
Also, New Jersey is in some ways ahead of the pack in trying to deal with the crisis - Gov. Jon Corzine, a Democrat, made addressing the problem a central theme of his 2005 campaign - and the obstacles it is encountering shed light on the hard choices facing other states.
"The pension obligations could spark a huge problem for New Jersey," says Thomas Kean, a former Republican governor. "They must be paid because they are absolutely an obligation of the state, but as it is, the budget is balanced with chewing gum and sealing wax."
To figure out how such a wealthy state (with a median household income of $65,933, New Jersey ranks No. 1) dug itself into this hole, set the clock back almost 20 years.