Scheppach: COVID-19 Will Turn the State Pension Problem Into a Fiscal Crisis

You may be wondering why, over the last few months, the state pension problem – normally not a subject of widespread discussion – has been in the news.

In fact, you may be wondering just what the state pension problem is.

The problem – and it’s a big one – is that many of the public employee pension plans run by states don’t have enough money in them to make upcoming pension payments to retired state workers.

The first time the subject came up recently was toward the end of February. That’s when teachers in Kentucky called a sick-out and protested various pension changes advocated by the state legislature.

Kentucky’s public pension plans are among the worst-off financially of all the state systems, with only enough money in them to cover 34% of future pension payments as of 2017.

Then, in late April, five GOP senators wrote to the president to say they didn’t want the federal government to give additional aid to states hard-hit by COVID-19. “We believe additional money sent to the states … will be used to bail out unfunded pensions, reward decades of state mismanagement, and incentivize states to become more reliant on federal taxpayers,” they wrote.

The senators’ sentiments were echoed by many in the Senate Republican leadership, including Senate Majority Leader Mitch McConnell, who said, “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

The problem has been a long time coming, but COVID-19 may make it into a crisis.