Public pensions at risk of shortfalls
Pandemic may hamper employer contributions
Corey Shelton, an eighth-grade science teacher in Jackson, Michigan, has earned a pension after more than 20 years on the job, but now he’s concerned that the economic devastation from the coronavirus pandemic will threaten the monthly checks he’s been counting on to fund his retirement.
“We’re riding the first wave of a financial tsunami,” says Shelton, 43, who expects to retire in four years. “We don’t know the financial devastation that’s going to come out of this.”
State pension plans across the country were already more than $1 trillion short of the funding needed to pay their future obligations to retirees, according to retirement experts at The Pew Charitable Trusts.
Pensions typically receive funding from employer contributions that are invested in a wide range of assets, including stocks and bonds. Gains from those investments are designed to help reduce the amount the employer needs to add to the pension fund to make future payments to retirees.
Now, with stocks below recent highs and state and local government budgets crunched, public pensions are at risk of even greater shortfalls.
Facing an immediate gap in state revenue of $650 billion over the next three years, according to the Center on Budget and Policy Priorities, officials may postpone pension contributions and slash future benefits for teachers, police officers, firefighters and state workers. At the same time, the risk of bankruptcy has jumped for cashstrapped cities and counties throughout the country, raising the prospect of pension cuts for current retirees, like what happened after the City of Detroit filed for Chapter 9 bankruptcy in 2013.
After U.S. Senate Majority Leader Mitch McConnell in April floated the