Pension Iceberg Grows $4 Billion

Pennsylvania’s ailing government worker pension system just landed taxpayers an estimated $4 billion more in unfunded pension liabilities.

The Public School Employee Retirement System (PSERS)—the largest government worker pension system in the state—recently released investment returns that were less than half what was anticipated, at 3.4 percent versus the 7.5 percent the system generally expects.

If pension investments fail to perform as well as administrators expect, taxpayers are required to fill in the gap. So this latest shortfall is $4 billion in bad news for taxpayers already in hock for a growing pension liability. CF’s Rick Dreyfuss estimates that PSERS unfunded liability will now increase from $27 billion to about $31 billion as a result of this latest market loss.

Underfunded and overpromised pensions are a significant cause of bankrupt cities and further threaten the state. Taxpayer contributions for Pennsylvania’s government worker pension systems are expected to rise from $1.7 billion to $6.1 billion over the next five years. That increase tacks on an extra $1,000 per Pennsylvania household in increased taxes. And unfortunately, those tax hikes address only the billions we already owe retired workers, but currently have no money to pay.

While there is no painless public policy solution to prevent taxpayers from picking up the enormous tab already promised to fund state and school employees’ pensions, lawmakers can ensure the unfunded liability stops growing. To learn how, check out CF’s five-step plan to help policymakers transform public pensions into a current, affordable and predictable plan.