Poor accounting rules and flagrant irresponsibility have sped up the states’ day of reckoning.
For decades state officials have encouraged adults to believe in the financial equivalent of the Tooth Fairy: that state pensions can yield high returns while being risk-free. Now taxpayers are in for a serious toothache.
Nearly every state offers defined-benefit pension plans for public employees. Financed through a mix of employee and employer contributions along with the investment returns on pension funds, a defined-benefit plan represents a contractual obligation to dole out a set amount in annual payments for as long as the recipient lives, regardless of whether there are sufficient assets in the fund at the time of the employee’s retirement.
One would think this obligation to pay no matter what would have led states to invest conservatively and plan ahead. Instead, they have been following accounting rules that pretty much guarantee the funds will be unsustainable.
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