The United States faces a public pension crisis. Even before the COVID-19 pandemic, state and local government retirement schemes were bleeding red ink and on the cusp of failure.
The coronavirus further worsened the situation.
According to a new study by the Wilshire Trust Universe Comparison Service, these pensions had their worst quarter since the Great Recession.
The median government employee pension shed about 13 percent in the first quarter. Pensions have lost about eight percent since the start of the fiscal year on July 1. It is clear that public pensions will fall short of their annual return targets of seven percent.
This is bad news for governments that are facing budget shortfalls that could top $650 billion over the next five years. While they will inevitably cut their payments, they will also increase their unfunded liabilities.
Here is a dire warning from S&P Global Ratings:
“While deferring costs in the near term may provide budgetary flexibility and be a liquidity management tool, it will increase long-term pension costs.”
Winter’s coming!
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