Barry Armstrong
Founder and President, Armstrong Advisory Group

The Commonwealth of Massachusetts faces a dire public pension crisis. According to a recent CNBC report1 from June of 2016, the Bay State has saved just 62 cents on the dollar to fund pension liabilities. The report also noted that our total public pension shortfall is $94.5 billion. Suffolk University’s Beacon Hill Institute reported2 in 2013 that the Commonwealth has an unfunded liability of $23.6 billion in just three of its largest pension funds: the State Employee’s Retirement System, the Massachusetts Teacher’s Retirement System, and the Boston Teacher’s Retirement System. It has been estimated that the complete funding of these three systems would require taxpayers to foot $1.3 billion in mortgage payments over the next three decades. If you ask me, that is a really expensive mortgage payment.

Massachusetts is not alone in its struggle with unfunded public pension liabilities. Other states such as Illinois and New Jersey share in our financial challenges. A report3 published in April of 2016 by the Illinois Policy Institute estimated that the nation’s fifth-largest state has a public pension debt of $111 billion. In New Jersey, the state’s unfunded pension and health benefits amount to $144 billion4. According to estimates5 from Moody’s Investor Services that were released in April of 2016, unfunded public pension liabilities at the federal level amount to approximately $3.5 trillion, which accounts for 20% of our nation’s GDP. The same report also indicated that state and local public pension liabilities bring the system’s total shortfall to 40% of GDP. This crisis is clearly impacting governments at all levels.

We understand what the problems are, but what are some of the solutions that have been proposed? One solution to stop the bleeding is to offer 401(k) plans to new public-sector hires in lieu of participation in a public pension plan. This would permit these new hires to take ownership of their retirement and determine their own appetite for risk like their counterparts in the private sector. It would also limit the immense liabilities faced by federal, state, and local governments in years to come. Another idea is to simply offer a pension buyout to existing pension plan enrollees and provide these people with the option to participate in a 401(k) plan instead. These are just two of many possible solutions to this widespread crisis.

Ultimately, I strongly believe that public sector entities would be wise to follow the lead of private sector companies regarding benefit structures. Overall, private sector companies have found efficient and effective ways to provide employees with livable wages and benefits without placing their corporate financial wellbeing at risk. As the owner of a private sector company, I am highly confident that such solutions would help to improve the financial security of public sector employees and reduce the collective burden of taxpayers in every state.

Barry Armstrong has over 30 years of experience in the financial industry. He founded the Armstrong Advisory Group in 2004 and has been sharing his financial knowledge with New Englanders on a daily basis during his Boston-based radio broadcast for nearly 20 years. Learn more about Barry and the Armstrong Advisory Group at www.armstrongadvisory.com. Securities offered through Securities America, Inc. Member FINRA/SIPC and Advisory Services offered through Securities America Advisors. Barry Armstrong, Representative. Representatives of Securities America do not offer tax advice. Always seek the assistance of a tax professional familiar with the laws in your state. Armstrong Advisory Group and Securities America are unaffiliated. November 2016 – AT 1643516.1

1 http://www.cnbc.com/2016/06/01/these-states-are-a-bigger-fiscal-mess-than-illinois.html
2 http://www.beaconhill.org/BHIStudies/Pensions2013/PensionReformBHIFinal2013-0222.pdf
3 https://files.illinoispolicy.org/wp-content/uploads/2016/04/Pension-papers_combined_4-8.compressed.pdf
4 http://nypost.com/2016/06/26/new-jerseys-pension-apocalypse-is-looming/
5 https://www.moodys.com/research/Moodys-US-government-pension-shortfall-overshadowed-by-Social-Security-Medicare–PR_346878