California’s huge state pension system, known as Calpers, is offering a clue about the investment losses these programs face. It posts an investment snapshot, which suggests the total value of its investments has fallen by some $69 billion since mid-February, when it peaked at about $404 billion. Even then, it was short of what it needed to pay all the benefits it will ultimately owe.
So were Illinois, Kentucky, New Jersey, Connecticut, Colorado and many other states. Many counties and cities, too, had large pension shortfalls even before the current market crash.
And in most cases, state laws and constitutional provisions make those pensions sacrosanct — they have to be paid, come what may. Attempts to reduce benefits in meaningful ways often meet with fierce opposition, and failure: In 2015, for instance, the Illinois Supreme Court issued a sweeping, unanimous decision that every penny had to be paid, even the pensions that current public workers had not yet earned.
To reduce costs, some states have tried closing their pension plans to new hires. In Kentucky, state lawmakers met last month in a locked-down capitol to consider such a maneuver for its teachers’ pension plan. The state has also pushed covered workers to pay more; it already takes 13 percent from current teachers’ paychecks, more than twice the payroll tax rate for Social Security.
The other strategy is to turn to taxpayers — the very people and businesses that are now facing shutdowns, layoffs and shriveled balances in their 401(k) accounts.
Illinois chose the path of widespread taxation to pay its retirees’ pensions, including a 3 percent compounded annual increase, a figure well above the recent rate of inflation.
The state doubled its gas tax last year. It tripled a real estate transfer tax, and raised taxes on cigarettes, vaping, electricity and even dry-cleaning fluid. It made marijuana legal and taxable. It approved gambling, so casinos can be taxed, too. Tags for virtually all cars and trucks went up in January.