Economists forecast U.S. pension fund shortfall to hit $1.5 trillion
D.C., Washington, United States (AHN) – It is not only the U.S. federal budget that is projected to have a 13-digit deficit. According to estimates from economists, the pension fund deficit of state and local workers is expected to hit $1.5 trillion.
The amount is more than double the initial estimate of Boston College’s Center for Retirement Research, which gave a funding gap figure of $700 billion based on an assumption of 8 percent earnings a year.
The 8 percent is based on government assumptions of historical returns of the stock market, although historical performance of the stock market showed no 8 percent annual return over every given period.
Economists explained the ballooning figure to government method of accounting, which underestimates cost of future pension payments.
The look into the real cost of pension plans is timely as Wisconsin, New Jersey and other states grappling with budget deficits and cost cutting measures passed or consider legislation to weaken union power affecting about 17 million state and local government employees.
To fund the pension deficit in Wisconsin, Gov. Scott Walker wants state employees to contribute 5.8 percent of their wages.
Using current accounting methods, the Center for Retirement Research and other groups calculate the shortfall is at least $344 million. However, when the center shifted to revised accounting methods to reflect more accurately future payments, the amount reaches a staggering $1.9 trillion.
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