Governments throughout the United States are facing fiscal crisis, often driven by the unsustainable burden of underfunded pensions and retiree health care costs. In the absence of swift corrective action, these growing unfunded obligations will swamp the budgets of cities and states, forcing insolvency or untenable service cuts in core areas of public safety, infrastructure and education.
With the baby boom generation retiring earlier and living longer, costs have escalated dramatically. Years of underfunding have made the situation worse. In many cases, the immediate payments due are daunting. The underfunded liabilities were exacerbated by the Great Recession beginning in 2007 and the attendant pension asset losses. This decline has been worsened by a slow recovery in the economy while the liabilities continue to grow.
Rising health costs are also well documented. The highest levels of federal government have warned that without reduced health care spending, the nation will be bankrupted.
A REALISTIC STRATEGY:
DSI Civic Financial Restructuring has in-depth experience with government pension and health care plans as well as in negotiations with organized labor. DSI Civic has also represented many court-appointed retiree committees, helping balance the financial realities of organizations with the need to protect the financial future of current and future pension recipients. Our approach is inclusive. DSI Civic helps governments keep the public engaged and informed—as well as management, employees and the media.
We suggest a three part approach to realistically dealing with employee pension and health care liabilities: (1) stop the bleeding; (2) stem the growth of the liabilities; and (3) restructure for affordability.
It starts with reviewing realistic options and all stakeholders sharing in the solutions and costs. These options could include some or all of the following, as part of a larger plan:
- Commitment to affordability and fairness by employers, management, employees and labor
- Compensation controls
- Asset infusion
- Restructuring benefits
- Increase in contributions by all
- Pension obligation bonds
We recognize that financial expertise is essential, but not sufficient, to successfully solve challenges of this magnitude. Strong and proven negotiation and public communication skills are also key ingredients in solving seemingly intractable public finance problems.