Why State & Local Pension Problem Will Get Worse

By S. Malanga, City Journal - July 11, 2014

When unions agreed to a deal last month with Detroit city government to freeze the city’s underfunded pension system and create a new, less expensive one, some experts hailed it as a model that other troubled cities might adopt. News reports prominently mentioned governments with deep retirement debt, including Chicago and Philadelphia, as candidates for similar reforms. But the agreement came about under a Michigan emergency law that applies to struggling cities like Detroit, which is in bankruptcy. In many states, by contrast, local laws and state court rulings have made it virtually impossible to cut back retirement benefits for current government employees, even for work that they have yet to perform. These state protections, which go far beyond any safeguards that federal law provides to private-sector workers, are one reason why so many states and localities are struggling to dig themselves out of pension-system debt, amid sharp increases in costs. It will take significant reforms to state laws—or bigger and more painful bankruptcy cases—to make a real dent in the pension crisis.

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