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Why local governments and school districts are wrestling with unfunded pension liabilities

Mar 27, 2017

What happens when a city can't keep its promises to retirees?

The result is one of the biggest problems facing our state, and the nation: unfunded pension liabilities.
Yet, most peoples' eyes sort of glaze over when those words unfunded pension liability start getting tossed around.

Liz Farmer, finance writer for Governing Magazine, joined Stateside to explain what unfunded pension liabilities are and what they mean for Michigan, and for municipal workers and retirees. 

Unfunded pension liabilities are "the amount of money that you don't have that you eventually need to pay your retirees," Farmer said.

"A lot of people like to look at the recession and point to that as the sole reason that so many pensions have these big unfunded liabilities," she said, "but ... the story started before that."

One reason this has happened over the last 10 to 15 years is that companies are not getting enough return on their investments. People expect pension funds to earn about 7-8% on average every year, but they've fallen short of that. 

The Great Recession is another reason. It eliminated a big portion of those pension funds. Retirees are also living longer and, therefore, run up higher health care costs.

Listen to the full interview above to learn how widespread this problem is nationally and what impact this has on the state and its cities. Also, who's to blame and what's at stake if Michigan doesn't fix this problem?

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