State and local governments face a $5 trillion dollar unfunded pension liability. In other words, politicians promised workers $5 trillion in retirement benefits, but government doesn’t have the money.
John Stossel asks, how this could happen? City Journal Contributing Editor Daniel DiSalvo tells him, because “nobody was paying attention.”
Politicians keep promising government workers better pension benefits, but don’t set aside the money to pay for them.
DiSalvo says that’s because “both parties, Democrats and Republicans have incentives to short the pension fund… For Democrats, if we cannot put as much in, we can free up more money for greater public spending on public programs. If we’re Republicans, we probably want to say cut taxes.”
City Journal Senior Editor Steve Malanga adds, “5 years from now, 10 years from now, they’re gonna have a problem. But 10 years from now somebody else is in office.” So someone will have to pay the bill.
When Stossel asks Malanga for a solution, he answers “reduce the level of benefits … put more of the contributions towards paying off the debt, and go to individual accounts,” like 401k’s, what most people in the private sector have.
So far, neither politicians nor the unions are willing to accept this. Stossel warns: one day, no matter what the promise, we simply won’t be able to keep it.