Politics

Millions of Retiring Boomer Public Workers Mean Higher Taxes For Millennials

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Mark Tapscott Executive Editor, Chief of Investigative Group
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More than half of the nation’s 25 most generous state and local public pension systems received Ds when graded by the non-profit government watchdog Truth In Accounting (TIA) on their ability to pay promised benefits to a rising flood of Baby Boomer retirees.

That’s very bad news for millennials because unfunded pension benefits often mean higher taxes for productive workers. Millennials who are now moving up career ladders and earning higher incomes make up the biggest portion of the taxable workforce now and will represent 75 percent of it by 2030 when the tailend of the Boomer generation is entering retirement.

California’s State Teachers Retirement System offers the most generous benefits among the top 25 with a total current obligation of $259.1 billion, but TIA gave the program a D+ because it’s assets are $67.3 billion short of being able to make good on all of its promises. That means retiring participants in the system could get only 74 cents on every dollar in promised benefits.

The Texas Teacher Retirement System is the second largest of the top 25 most generous and it got a D+ because its $128.5 billion in assets can only cover 78 percent of the $163.9 billion it has promised in benefits.

Similarly, the California Public Employees Retirement System – Group A is the third largest of the top 25 and received a D+ because it has promised $151.5 billion in benefits but only has $112.1 billion in assets, or 74 percent of what participants have been told to expect.

Others in the top 25 getting Ds include the Illinois Teachers Retirement System, Ohio State Teachers Retirement System, Pennsylvania Public School Employee Retirement System, Virginia Retirement System, New Jersey Public Employees Retirement System and the New York City Employees Retirement System.

Also, the Michigan Public School Employees Retirement System, Maryland State Retirement and Pension System, Teachers Retirement System of the City of New York, Arizona State Retirement System, New Jersey Police and Firemen Retirement System, Nevada Public Employees Retirement System and the Massachusetts Teachers Retirement System.

With the exceptions of Texas, Virginia and Arizona, all of these tottering government pension systems are in traditionally liberal deep-blue states with the strong public employee unions. Worries about economics, however, were key in Republican President-Elect Donald Trump carrying Pennsylvania, Michigan and Ohio.

An estimated 10,000 new Baby Boomer retirees begin drawing benefits every day, a trend that will continue for many years. Millions of these new retirees are leaving jobs with state governments, local school systems and municipal police and fire workforces.

Most of the pension systems in the top 25 most generous already have hundreds of thousands of participants drawing benefits. The Texas system, for example, currently has more than 233,000 participants and dependents and its numbers will swell in the near future.

Booming pension benefit obligations can become major factors in municipal bankruptcies. Detroit officials, for example, faced stiff opposition in 2015 from local public employees when the city had to make major spending cuts, including across the board 6.7 percent reductions in benefits for current retirees.

Even with reduced benefits for current and future retirees, however, state and local taxpayers are in many jurisdictions legally obligated to make up the difference between assets and promised benefits, which can result in steeply higher levies.

A total of 304 state and local public pension systems were graded by the Chicago-based TIA, with 69, or 23 percent, receiving A+ or A grades. Twenty-four of the systems received B grades from TIA and 46 got C grades.

The nation’s healthiest state or local public employee pension system measured by the percentage of its promised benefits are fully funded is North Carolina’s Register of Deeds program, which is 197 percent funded. Forty six of the systems graded by TIA were 100 percent funded or more.

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Mark Tapscott