Public employee pensions will need a bailout of at least $1 trillion, according to a study by Northwestern University economist Joshua Rauh.
And that’s assuming states and cities get rid of cost-of-living increases and raise the retirement age.
“Even if states uniformly eliminated generous early retirement deals and raised the retirement age to 74, the unfunded liability for promises already made would still be more than $1 trillion,” Rauh said in a statement, Bloomberg reports.
“There is no magic bullet as far as policy changes are concerned.”
So what’s the answer for funding the generous pension benefits that have been promised?
“Ultimately taxpayers will have to come up with sums of this magnitude. If unfunded liabilities continue to grow, the bailouts could be even larger,” Rauh said.
Here’s how the numbers work. His analysis of 116 U.S. retirement plans for teachers and government workers shows they had $1.89 trillion in assets dwarfed by $3.15 trillion in liabilities, as of June 30, 2009.
That equates to a shortfall of $1.26 trillion. And using less generous investment return assumptions, the gap rises to $3.39 trillion.
This municipal financial crisis has led some cities to sell off valuable assets, which could ultimately mean bigger losses.
"The deals are part of a broader restructuring of our economy that carries big risks because of revenue losses over time," Michael Likosky, a professor at New York University, told The Wall Street Journal.
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