Navigating the pension crisis
By Emily Hutto
New GASB standards will paint a clear picture of the United States' pension landscape, and the picture isn't so pretty.
New laws imposed by the Governmental Accounting Standards Board (GASB) that require transparency in public pension finances are shedding light on discrepancies between projected pension funding and actual net dollar amounts associated with those plans.
A study by the Center for Retirement Research at Boston College shows that state and local pension plans are 57 percent funded, in contrast to the projected 76 percent. The new number reflects assets based on current market prices and the total pension obligations of these states and municipalities.
The intention of these new laws is to prevent states and towns from skipping or slighting payments like they've done in the past, and in the process they are revealing the widespread pension crisis in the United States.
Over the past few years, 43 states have cut benefits, increased the employee contribution amounts to pensions, bumped up the number of years needed to qualify for retirement and reduced annual living costs. But will these changes be enough to adequately fund pensions into the future?
Likely not. And that's why many companies are considering defined contribution pension plans, or public-private hybrid products in which employers guarantee specific monthly benefits, often based on employees' terminal earnings. Other companies are considering eliminating pensions all together.
Is the United States prepared for retirement without a pension plan?