A Warning on Unfunded Government Pension Liabilities

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Unfunded pension liabilities for state, local and federal governments have grown to $7 trillion, according to a new report by Moody’s Investors Service, a credit-rating agency.

With the U.S. population aging, the troubling report says, the federal government has $3.5 trillion in unfunded liabilities of various pension systems covering civilian and military employees.

The report found retirement plans for employees of state and local governments combined are unfunded by a roughly equal amount. Citing historical precedent, however, Moody’s says the federal government is unlikely to offer “significant financial support” for state and local governments with distressed pension plans.

“The bigger challenge to the U.S. comes from the unfunded liabilities for the Social Security and Medicare programs,” says the report. “The Social Security funding gap is estimated at $13.4 trillion, or 75 percent of GDP, while the shortfall from the Hospital Insurance component of the Medicare program amounts $3.2 trillion, or 18 percent of GDP.” In addition, other parts of Medicare are directly subsidized by general tax revenues.

This report shows why federal lawmakers must not only put the entitlement programs on sustainable paths but should repair federal pension programs. State and local governments must also fix their pension programs rather than assuming Washington will bail them out.

External links:
U.S. Government Pension Shortfall Overshadowed by Social Security, Medicare Gaps (Moody’s)

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