What is going on in state and local defined benefit retirement funds is going to make the subprime crisis look like small change. The problem is that politicians have been promising benefits to employees at the state and local level that are unsustainable because 1) they are buying votes, and 2) by the time it becomes a problem it will fall to someone else to fix.
I can think of no better reason than to shift our antiquated pension system to a defined contribution system (401k). With baby boomers retiring in droves, or worse, seeing the writing on the wall and accelerating retirement, the conditions are primed for a complete meltdown in state and local finances as governments suffocate under the crushing weight of pension obligations they underestimated and are ill-equipped to pay for.
By firing its actuarial consultant last week, the New York State Legislature shone a light on one of the public sector’s deepest secrets: All across the country, states and local governments are promising benefits to public workers on the basis of numbers that make little economic sense.