The U.S. government should rescue troubled state pension plans with billions of dollars in long-term, low-interest loans, New Jersey Senate President Steve Sweeney proposed on Wednesday.
The trillion-dollar question is whether it would save public pensions or sink them deeper in debt. That’s the underfunding public retirement plans collectively face in the 50 states, according to a Pew Foundation study.
“A federal plan to restructure the pension debts would cut annual payments and save the taxpayers money,” said Sen. Sweeney, D-West Deptford.
Sweeney said New Jersey now needs to pay $6 billion a year for the next 30 years to erase its $51 billion in unfunded pension liabilities. He calculated the annual payment would be cut in half to $3 billion with a $50 billion loan from the Federal Reserve at an interest rate of 1-percent a year.
But the Garden State’s total public pension system shortfall is actually $170 billion -- more than three times the figure cited by Sweeney -- according to New Jersey Watchdog’s analysis of state Treasury records. It includes:
- $82.7 billion in unfunded liability for the pension plans of state workers
- A $20.7 billion shortfall for the pensions of local government employees
- $53 billion in unfunded health benefits for state retirees, and
- $13.8 billion to cover the post-employment benefits local government workers
Paying that full debt could cost roughly $10 billion per annum, even at 1-percent interest over three decades. The yearly payments would equal one-third of the entire state budget, currently $33.8 billion.
“Bad idea!” opined Bob Williams, president of State Budget Solutions, a non-profit watchdog. “How does Sen. Sweeney expect the feds to fund a low-interest loan program? Congress has enough problems trying to get the loans they need to pass their unsustainable federal budgets.”
The full story is online at http://watchdog.org/231882/pensions-loans-new-jersey/.
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