Are Pension Plans Hiurting Local State Economies?

There are many states faced with the possibility of bankruptcy. Local government pension plans play a major role in this latest financial meltdown. As a result of these new developments many workers in the public sector such as police officers and fireman will suffer severely.

Not only have state economies been weakened by the current recession, but also by inadequate pension plans. Most states pension plans are both highly outdated and under funded. A pension plan is described as a promise to pay employees after they retire. In the past when the American economy was strong many local government workers could retire before the age of 65. Some of them even made more money in post retirement than when they worked full time. This is no longer the case now. It is almost as if workers who have worked for 20-30 years, there service was in vain.

As states grapple with the ongoing problems of pension plans many retired workers although already retired, yet many of them had no other choice but to re-enter the workforce. There are some that are working for the sake of having affordable health care while others post retirement nest eggs have taken a turn for the worst. This is a serious problem in the state of Georgia where I currently reside. Like other states Georgia has been economically devastated by pension plans. There is a strong possibility that most states could exhaust there pension plan assets within the next 20 years. Now many state governments believe that they have solutions to the pension plan problems. I really don't believe that by increasing both the retirement age and increasing taxes is going to resolve the problem. There are a couple of things that state governments might want to consider in efforts to properly handle the pension plan problems. I highly recommend that states do away with those traditional pension plans. Private pension plans might be a better alternative because they will provide more stability especially if workers have full control of their contributions that they can make toward the plans. It is imperative that states understand that when people leave the workforce they need adequate compensation to adjust to the constant increase in the cost of living. If states continue to allow current pension plans to stay in place the financial ramifications could possibly lead to local government shutdowns.

Geitz, J, J. Fred, Papke, Leslie E. Public pension plans: myths and realities for state budgets, National Tax Journal