SBS’ call to action was in response to General Motors announcement last week that on September 30, 2012, they will freeze the defined benefit pension plans of all salaried workers in an effort to hold down expenses. Their announcement will affect 19,000 salaried workers hired before 2001, who will move from traditional pension with guaranteed payments to a 401 (k)-type plan with contributions based on salary and bonuses.
The letter, which is written by SBS’ President Bob Williams, calls on governors in all 50 states to face the harsh realities of unfunded liabilities that if left unaddressed will require crippling tax increases and service cuts. A recent State Budget Solutions' compilation of academic studies showed that the total unfunded pension obligation for state and municipal governments is at least $4 trillion based on common actuarial assumptions.
The letter reads:
“It is time for state government to accurately account for and begin reducing massive deficits. By freezing defined benefit pensions, you are taking one step closer to truly balancing budgets. Our nation can no longer ignore the realities and push our budget problems onto future taxpayers. Corporate America isn’t always right, but eventually they have to acknowledge the light of reality. GM is a beacon that your administration must follow.”
Full text of the letter is below.
General Motors recently took a proactive step in creating a "fortress balance sheet” by ending traditional defined benefit pension plans and preventing across-the-board pay increases for 29,000 U.S. salaried workers this year.
It is a testament to the harsh realities of unfunded pension liabilities, something that your state is dealing with as well.
A State Budget Solutions' compilation of academic studies shows that the total unfunded pension obligation for state and municipal governments is at least $4 trillion based on common actuarial assumptions.
The widely quoted 2011 Pew "Widening Gap" study showed a 26 percent increase in the unfunded liabilities in one year even using the official state numbers. However, few noted that Pew confirmed, using a more realistic discount rate assumption, “as of mid-March 2011, the states’ cumulative liability for pension benefits would grow to $4.6 trillion, with an unfunded liability of $2.4 trillion,” almost double the headline estimate in the report.
Across the country, states have understated their true unfunded pension liabilities because lax government accounting rules allow it. As a result, the plans are severely underfunded and will adversely impact every state budget for decades. Without major reform now, those liabilities will continue to grow.
We at State Budget Solutions urge you and your administration to follow General Motors’ lead to freeze defined benefit pensions for all employees and begin the transformation into defined contribution plans that would reduce the risk to taxpayers, provide you with a reliable cost estimate for budgeting and give state workers control over their retirement funding.
It is time for state government to accurately account for and begin reducing massive deficits. By freezing defined benefit pensions, you are taking one step closer to truly balancing budgets.
Our nation can no longer ignore the realities and push our budget problems onto future taxpayers. Corporate America isn’t always right, but eventually they have to acknowledge the light of reality. GM is a beacon that your administration must follow.
To set up an interview with Bob, please contact Meghan Tisinger at Media@statebudgetsolutions.org or 703-965-1145.
Bob Williams, President of State Budget Solutions, is a former state legislator, gubernatorial candidate and auditor with the General Accountability Office. To read Bob Williams full bio click here.
About State Budget Solutions
The State Budget Solutions Project is non-partisan, positive, pro-reform, proactive and anchored in fundamental-systemic solutions. The goal is to successfully engage political journalists/bloggers, state officials and opinion leaders in a new way of thinking about state government and budgets, fundamental reforms, transparency and accountability. Sharing studies and articles, data sets, anecdotes, and compelling narrative about what is happening in state and local budgets, The State Budget Solutions Project presents and disseminates information about every aspect of coming fiscal and economic disasters and, more importantly, highlights fundamental reforms to avoid them.
Check out StateBudgetSolutions.org for more information.