Government Pensions Cut

Four workers who had retired from the City of Loyalton, California, just saw their promised government pensions cut by 60% with the arrival of the New Year. This was the first time that the California Public Employees’ Retirement System, known as “CalPERS” for short, has punished a city by cutting the pension payments to its workers.

CalPERS took this action because the city had declined to continue to make costly contributions into the CalPERS system. Most government pension systems are not fully funded by past contributions, but require new funding in order to honor promises to retired workers. When cities or counties stop contributing to the pension system, then payments to retired workers may decrease.

The City of Loyalton is not the only town that has dropped out of the CalPERS pension system, so more cuts may lie ahead for other retired workers in California. Up to 100 cities have dropped out of CalPERS due to its ongoing demands for contributions.

Retired government worker John Cussins explained that that the cut to his pension payments reduced him to receiving only $1,523 per month, which is difficult to live on in California.

“Unfunded liabilities” is the term economists use to describe promises made without the money to pay for them. California has $241 billion in unfunded pension liabilities.

In Illinois, another liberal state, the unfunded pension liabilities more than doubled from $42.2 billion in 2007 to $111 billion in 2015. That occurred despite how the contributions by the state had nearly quadrupled during the same period.

While this crisis is worse in several liberal states, even oil-rich, conservative states like Texas are facing similar problems. Four of the worst twelve cities in the entire country in terms of the size of their unfunded pension liabilities are all located in Texas. Dallas, for example, has an unfunded pension liability that is more than five times its annual operating revenue. This issue is the death knell of many states. You would be wise to look into your state’s pension systems and liabilities.

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