Will public pensions be next bailout?

Will public pensions be next bailout?

Along with the stock market, retirement savings, and taxpayers' sanity, state and municipal government employee defined-benefit pension funds are reeling from the financial meltdown.The current economic turmoil and stock market downturn have caused government employee pension funds to lose hundreds of billions of dollars. The crisis only reinforces the need for states to move their pension systems from the onerous defined-benefit obligation to a more mobile and sustainable defined-contribution model.It's a potentially catastrophic problem. According to the Center for Retirement Research at Boston College, as of Dec. 16, 2008 public
pensions in the United States were underfunded by nearly $1 trillion.

Worst is Illinois, where the pension system has only 54 percent of the necessary funding and an unfunded liability of $54.4 billion.Even before our current financial shakeup, more than 20 million state and local government employees' pensions nationwide were in dire fiscal shape.

For example, in June 2007 New Jersey's unfunded liability was already $28 billion. Since then the number has soared to more than $52 billion, with roughly 45 percent of the obligation unfunded.Defined-benefit (aka "traditional") pension plans are falling apart because they're inherently flawed in design by guaranteeing employees a predetermined benefit upon retirement.

Public pension benefits are also much more lucrative than private-sector pensions and widely prone to "double dipping" abuse. And with vesting periods often being 10 years or more, government pension systems box many workers into a corner, forcing them to stay in jobs they don't like in order to keep their benefits.

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