An earlier Levy post outlined America’s multi-dimensional pension crisis. Now comes this paper from economist Joshua Rauh, who says that at least seven states may be unable to pay their public-pension obligations during the next decade–and by 2030 that number could reach 31 states.
Barring reforms, Rauh says, a federal bailout could be needed, possibly exceeding $1 trillion. In the paper, he gives a sense of the magnitude of the problem: “The gap between assets and already-promised liabilities in state pension funds alone was over $3 trillion at the end of 2008.”
What is to be done? Part of the answer, Rauh writes, is that states might give public employees defined contribution plans–and bring into the Social Security system the quarter of state and local workers now outside of it.