Unlike House Bill 2, state pensions and other benefits for state employees seldom land on the front page. But there’s money involved. Real money.
For example, the state has promised to provide every state employee with free health insurance after they retire, for life. But, it turns out, there’s one hitch: Not one penny has been set aside to pay those bills. How big a problem is that? It’s an unfunded liability of $26 billion that’s going to land on taxpayer’s doorsteps when the bills come due.
The state’s second promise – to provide pensions for all state employees – has been funded. Money has been set aside. But the question is, is it enough?
Using widely accepted actuarial tables, the pension system is $3.7 billion short of being fully funded. That may sound like a big miss but in the pension world it’s not bad, making NC one of the best funded systems in the country. But now, like a category 4 hurricane, two outside storms are heading our way that could make matters a lot worse.
A state employee can retire with full benefits after working 27.5 to 30 years. That means it is possible for a state employee to retire with a pension and free health insurance when he or she is forty-five years old.
If a state employee retires at age fifty and lives to be eighty – that’s thirty years of benefits. Second, to remain solvent the state’s pension fund needs to earn a return of 7.25% each year.
However, that’s a pretty steep mountain to climb. The policies of today’s politically controlled central banks (including our own Federal Reserve) make reaching that goal nearly impossible.
The risks here are enormous: If the pension fund earns a 2.5% return instead of 7.25% then the taxpayers face a staggering bill of $47 billion.
Obviously, piling up debt to fund pensions and retirement benefits comes with enormous risk. We’re digging a massive financial hole that’s getting deeper every year.
In the long run we might be better off to simply pay new employees cold hard cash – by raising their pay – and make them responsible for their own pensions and health care benefits. Then if they set aside enough money to retire when they’re 50, more power to them.
As I said, unlike social issues, pensions and state benefits hardly make the front page. They’re boring stuff. But they’re also real money. And someone’s going to have to pay the bill.