The third shoe to drop

Right about the time that the bill comes due for Social Security and Medicare commitments, state pension programs are going to discover that the, um, “unique” accounting used to calculate liabilities has left government workers in the lurch. So writes Thomas Healey in the Boston Globe with “The ticking time bomb in state pensions”:

At first glance, state plans seem to be nearly as healthy as their corporate counterparts: they face a shortfall of $348 billion under current accounting rules, according to the National Association of State Retirement Administrators . This implies they are 86 percent funded, versus 90 percent for corporate plans.

However, these projections are misleading. The real shortfall of state-defined benefit pension programs is closer to $1.3 trillion, which translates into the plans being 64 percent funded. This alarming gap could set off a crisis whose magnitude would dwarf the $200 billion government bailout of the savings and loan industry in the 1980s. Just as disturbing, this threat is largely ignored because of opaque accounting.

Something’s gotta give.