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The hunt for a pension crisis fix

Experts say the best way for cities and states to get out from under crippling pension debt is to close their pension plans to new hires and move employees to lower-cost defined contribution plans. But there are additional ways to fix the problem.

By Paula Aven Gladych | Updated on July 31, 2013
Ed McNeil, a spokesman for the American Federation of State, County & Municipal Employees Council 25, outside the U.S. Courthouse in Detroit. (AP Photo/Paul Sancya)

The bankruptcy filings of large municipalities, like Detroit and Stockton, Calif., highlight a growing problem that needs more than a temporary fix.

Many, if not most, municipal governments are awash in pension debt. Lots of states are in the same boat. Part of the problem is today’s artificially low interest-rate environment, which has played havoc with pension assets and liabilities. Part of the problem also is a long history of governments not making the required contributions to their plans. Now they don’t have the money to do so, and the debt has become debilitating. It’s gotten so bad that many cities have found themselves paying more for retiree benefits than they do for public services such as fire and police.

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