We’ve often discussed problems facing state pension systems, but now we’re seeing the makings of a crisis forming over unfunded liabilities and state pension systems.

This time on the Financial Sense Lifetime Income Series, Jim Puplava discusses what he sees as a coming tsunami of pension problems for retirees.

Perfect Storm Brewing

This analogy of a perfect storm is appropriate, Puplava noted, because of the scale of the problem facing federal and state agencies when it comes to meeting pension obligations. The fact is, there are a number of forces all converging at the same time that will hit and cause widespread problems for pensioners.

It boils down to unfunded pension liabilities both at the state and the municipal level, Puplava noted. Politicians have made unrealistic promises to public workers during good times to build political clout, he added, but during times of low investment returns, these promises have become unrealistic and untenable.

The other aspect of the coming storm is rising Medicaid costs, which are squeezing state budgets, Puplava stated.

We’re covering this crisis in part because of a new study published by the Pew Foundation that supports these conclusions.

“If you were a state or a municipal worker in a troubled state, you should be made aware of it,” Puplava said. “In the next decade, you’re going to see many of these states begin to reduce benefits to retirees. It’s already happening right now. They’re going to change the guarantees offered and they’re going to reduce pension payouts.”

Promises, Promises

We can trace the origin of the problem back to 1965 when President Lyndon Johnson pushed through Medicare and Medicaid, Puplava said. Medicaid is paid for by the states, covering low-income families, people of all ages with disabilities, and people who need long-term care. The level of coverage also expanded under Obamacare, he added.