Public employee retirement systems could face shortfalls as retirees outnumber workers

Governments will need to make up a funding gap caused by investment losses, inadequate contributions

Mar 14, 2018 @ 4:39 pm

By Bloomberg News

For those worried about the ability of U.S. state and local governments to cover promised pension checks, the Census Bureau announced a milestone that should add to their fears: by 2030, for the first time, senior citizens will outnumber children.

In 12 years, about one in five Americans will be of retirement age, and by 2035, those 65 and older will outnumber those under 18 by about 2 million, according to the latest estimates released by the agency. The consequences are wide-ranging, from the solvency of Social Security to increased health care costs for an aging population.

The swelling ranks of retirees from public service, such as police officers and teachers, will also present a strain on state and local government retirement systems that have about $1.6 trillion less than what they need to cover the benefits workers are counting on.

That shortfall is the result of investment losses, overly aggressive investment forecasts, inadequate contributions and perks granted in boom times. Governments will need to pay more into the funds to make up that gap, putting a squeeze on their budgets that could imperil their bond ratings and diminish services for residents.

After the recession, American governments laid off workers and cut back on hiring, leaving fewer paying in to retirement systems as the number of retirees grows. The ratio of active workers to those receiving benefits has dropped to 1.42 from 2.43 in 2002, according to a survey of the largest public pensions conducted by the National Association of State Retirement Administrators.

Fully funded plans would have enough assets to cover the projected payouts. But for plans already facing gaps, the burden to pay for the benefits for current and future retirees will be even higher.

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