Sen. Orrin G. Hatch of Utah seemed to be trying to spark interest in an issue that was thoroughly on the back burner when he introduced a bill, with no co-sponsors, early this month addressing troubled public pension funds.
Just nine days after Hatch pushed out the measure, Detroit’s municipal bankruptcy filing nudged the proposal to the forefront of a potentially fierce debate over Washington’s role as a possible lifeline for investors and retirees.
Congress has enforced standards for private sector pension plans for nearly four decades under the 1974 Employee Retirement Income Security Act. But it has largely steered clear of state and local government pensions, except for occasional studies and oversight hearings.
A 2010 Congressional Budget Office study sounded an early warning that the federal government “might be asked to assist in the funding of such plans” and that such aid could “raise the federal deficit and debt” without offsets.
Now, similar alarms are sure to grow as lawmakers examine the scope of Detroit’s problems, highlighted by the city’s Chapter 9 filing that showed a deep financial hole fueled in part by huge pension liabilities. A legion of 20,000 city retirees — twice the size of the municipal workforce — faces likely benefit cuts as the city settles the $9 billion in unfunded pension and retiree health care costs that account for half of Detroit’s debt.
Hatch had suggested just such a wake-up call when he called for an overhaul of the pension management system on July 9. “America cannot continue sleepwalking into the financial disaster that awaits us if we do not get the public pension debt crisis under control,” he said.
Hatch and other conservatives point to the case of Detroit and a spate of similar, if smaller, bankruptcy filings from Central Falls, R.I., to Stockton, Calif., as harbingers of wider trouble. They aim to avert any bailouts or any fallout in the nation’s $3.7 trillion municipal bond market.
Even the measure of unfunded liability is open to debate, however.
The Public Fund Survey, a nonprofit research group, estimates total unfunded liabilities for plans with 85 percent of public pension assets at nearly $700 billion. But Moody’s Investors Service deems that estimate too low. The rating agency last year issued a benchmark estimate of such liabilities that is threefold larger — $2 trillion — based on a scenario for smaller investment gains.
In all, there are about 220 state plans and more than 2,500 local plans. They cover nearly 20 million active government workers, police officers and firefighters, and 7 million retirees.
Vice President Joe Biden waits to conduct a mock swearing-in ceremony with Sen. Brian Schatz, D-Hawaii, in the Capitol's Old Senate Chamber, December 2, 2014. Schatz was sworn in to serve the remainder of his term since he was appointed to the seat after Sen. Daniel Inouye, D-Hawaii, passed away.