Underfunded public pensions are an enormous problem that states, cities, school districts and other municipal entities will continue to wrestle with in 2013. Many public officials have already taken up the issue of reform, as their budgets are pressured by large required payments to public pension plans.
Nationally public pensions are funded at about 80 percent of their liabilities, but that masks the severe under-funding faced by some systems. For example, the Illinois state system only has about 43 percent of the assets needed to fund future pensions. States, cities, school districts and public employee unions have three options to address this problem – litigate, negotiate or go bankrupt. Here are examples of how this choice is playing out:
A private group, the Arnold Foundation, has published a guide to pension litigation across the country. The guide lays out the changes enacted by state legislatures and city governments, and the litigation filed to overturn the changes (see the map above). From the 2013 guide:
Once reforms occur, however, they are often challenged in the courts. Within the past three years, at least 24 jurisdictions have faced lawsuits alleging that pension reform measures are unconstitutional. Such jurisdictions include Colorado, Florida, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, Rhode Island, South Dakota, Chicago, San Diego, and San Jose.
Pensions are adjudicated differently under each state’s constitution, so there is not complete consistency in judicial outcomes (page 5):