Difficulties in the Public Sector
Unfunded Liabilities of State and Local Plans
Pension plans for american workers that sprang up in the prosperity of yesteryear are causing sobering second thoughts in the mid-Seventies. The problem is funding and it extends to pension plans both in private industry and government but especially to the latter. Many state and municipal governments are becoming aware they have not set aside enough funds to pay future pension costs. And in the federal government there are warnings that its pensions for civilian and military employees are rising so fast they pose a financial burden on the nation in the years ahead.
Critical scrutiny which only a few years ago focused on mismanagement and misuse of pension plans in private industry has turned to the adequacy of financing in the government sector. Massachusetts, for example, has estimated it will need $4.7-billion more than it has set aside for pension obligations. Los Angeles puts its pension gap at $2.9-billion. A recent report on New York City's five pension plans concluded that their unfunded liabilities amounted to $6-billion. As of mid-1975, the future deficit of the federal civil service retirement system was calculated at $97.2-billion. While civil service pensions are partially funded by employee contributions, the military retirement system has no reserves at all and each year takes a larger chunk out of the defense budget.
Sen. Thomas F. Eagleton (D Mo.) speaks of a “financial time bomb ticking away in the inner reaches of government” and Arthur F. Burns, chairman of the Federal Reserve Board, warns of a “terrible day of reckoning” to come for local, state and federal units of government in their pension funding. How soon the underfunding reaches the critical stage at any given place depends on how soon a large number of workers reach retirement age, according to Randall Weiss, an economist and pension analyst at the University of Maryland.