The National Public Sector Pension Underfunding Gap: $1 Trillion and Counting

What's the cost of underfunded public-sector pensions at the state and local level? $1 trillion and counting.

States may be forced to reduce benefits, raise taxes or slash government services to address a $1 trillion funding shortfall in public sector retirement benefits, according to a new study that warns of even more debilitating costs if immediate action isn't taken.

The Pew Center on the States released a survey Thursday of state-administered pension plans, retiree health care and other post-employment benefits in all 50 states that blamed a decade's worth of policy decisions for leaving them shortchanged.

The result for some states will be "high annual costs that come with significant unfunded liabilities, lower bond ratings, less money available for services, higher taxes and the specter of worsening problems in the future," the study said.

I've been detailing the problems in New Jersey for some time now, particularly how Gov. Jon Corzine claimed that he would fund the state pensions, only to turn around and say that municipalities could avoid their pension payment obligations to avoid raising taxes or cutting services.

The pensions are the ticking time bomb in state budgets nationally, and few are looking at the issue seriously. New Jersey attempted to deal with the problem a few years ago, but legislation stalled in the Assembly.

The state legislature is back at it again this time, and Gov. Chris Christie is demanding action - to rein in the costs and to demand that payments be made annually - forcing the state to deal with pension payments rather than ignore the obligation or shift the costs into the future. A referendum for mandating annual pension payments is being considered. Of course, even the referendum is pushing a phase-in, because mandating the full payment would be a $7 billion a year hit on a budget that is nearly $40 billion (including current obligations - pension costs would be nearly 25% of the state budget in just a few years' time).

With that in mind, expect the politicians to push the decision off still further into the future (making the problems that much more intractable).

UPDATE:
Clarified the headline and lede that we're talking about public-sector pensions.