This week we turn to underfunded State pensions. As the baby-boomers retire, this will become an incredible problem for State Governments. The State Governments are currently underfunded by 2.8 Trillion dollars. With the expectation that the outsized fixed income returns are now over, how will the States solve these problems?
The answer; they cannot solve these problems unless they change the current structure of the pension market. A few years back the Federal Government bailed out the states and helped them plug a whole in pension benefits but states did not change the way they do business. The best performing state is North Carolina, they are 1/3 underfunded, as opposed to Illinois’ 80% underfunded plan. This is not sustainable and action needs to be taken. Granite Group Advisors recommended in the past that State and Local Governments freeze their defined benefit plans and migrate to 401ks. The effect in the long term would eliminate state and local municipalities liabilities and save the next generation taxes. The time is now before it is too late.