Viewpoint

North Carolina’s $47 billion time bomb

Wells
Wells

Unlike House Bill 2, state pensions and other benefits for state employees seldom land on the front page. But there’s money involved. Real money.

For example, the state has promised to provide every state employee with free health insurance after they retire, for life. But there’s one hitch: Not one penny has been set aside to pay those bills. How big a problem is that? It’s an unfunded liability of $26 billion that’s going to land on taxpayers’ doorsteps when the bills come due.

The state’s second promise – to provide pensions for all state employees – has been funded. But the question is, is it enough?

Using widely accepted actuarial tables, the pension system is $3.7 billion short of being fully funded. That may sound like a big miss but in the pension world it’s not bad, making North Carolina one of the best-funded systems in the country. But trouble looms.

A state employee can retire with full benefits after working 27.5 to 30 years. That means it is possible for a state employee to retire with a pension and free health insurance when he or she is 45 years old.

If a state employee retires at age 50 and lives to be 80 – that’s 30 years of benefits. Second, to remain solvent the state’s pension fund needs to earn a return of 7.25 percent each year.

However, that’s a steep mountain to climb. The policies of today’s politically controlled central banks make reaching that goal nearly impossible.

The risks here are enormous: If the pension fund earns a 2.5 percent return instead of 7.25 percent, then the taxpayers face a staggering bill of $47 billion.

Obviously, piling up debt to fund pensions and retirement benefits comes with enormous risk. We’re digging a massive financial hole that’s getting deeper every year.

In the long run we might be better off to simply pay new employees cold hard cash – by raising their pay – and make them responsible for their own pensions and health care benefits. Then if they set aside enough money to retire when they’re 50, more power to them.

As I said, unlike social issues, pensions and state benefits hardly make the front page. They’re boring stuff. But they’re also real money. And someone’s going to have to pay the bill.

Wells is a Republican state senator from Hickory.

  Comments