Here is an interesting article outlining Newton’s (MA) coming problems with unfunded pension and worker healthcare funding liabilities:
As I’ve discussed in the past, many blunders and miscalculations (and simply pushing problems to the future) put us in this position across the country. We can not blame the financial meltdown because overall, municipalities and such were too dependent on stock market performance to buoy pension funds.
Low interest rates hurt (thanks Helicopter Ben – another victim of your effort to bail out banks) because historically, bonds/fixed income are a big allocation in pensions due to their steady returns and stability (and ability to help match duration of pension liability to returns). With low to no yield on bonds, pensions had to take more risk to make up lost returns.
Historically, also, unsophisticated local leaders would offer overly generous pension/healthcare benefits to workers in exchange for them taking lower salaries (GM is a FANTASTIC example of this). Those projections are increasingly being seen as fantasy – and likely will mean younger and new government employees will see much reduced pension benefits.
Overall, we will all be facing some tough choices at the state and local level – do we raise property taxes (30, 50%?) to fund all this or do cities declare municipal bankruptcy like Vallejo, CA and Prichard, AL? We’ll see but definitely don’t think our financial problems are behind us. 2008 was a SYMPTOM of the real problems, the full effect of which we have not seen yet.
PS click the link to the left for PensionTsunami.com if you want to read pension-relevant articles, like the one above, each day.
PPS – keep up to date on budget activities in your state/city – it could dramatically affect your budget and your retirement. If you live in an at risk city, consider selling now and moving to a stable town. If expenses get out of control, property values will drop (see Lawrence, MA). Like I said, this will cost all of us in ways we have yet to see…