Unfunded Pension Liabilities in State and Local Governments
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In the last few years, many state and local governments have been under scrutiny concerning their pension plans. Many of these governments have severely underfunded pension liabilities, causing problems for many constituencies, including tax payers, government officials, employees, retires, and creditors. In total, public pension unfunded liabilities are estimated at $1.4-4 trillion, depending upon the discount assumption used. This paper analyzes the cause and effect of unfunded pension liabilities, with a specific focus on the city of Detroit. It then provides general solutions for solving the issue of unfunded pension liabilities. To maintain current pension benefit obligation levels and contributions, state and local governments could raise taxes in order to increase their contributions and decrease the range of services offered to taxpayers. To lower current pension benefit obligation levels and contributions, state and local governments could reduce retirees’ benefits or their overall workforce. The most likely solution to underfunded pension liabilities is to raise taxes; however, like all of the potential solutions, it will not come without opposition.