The Pension Timebomb

The biggest component or cause of the financial problems the US will be facing is pensions.

1. To start with, there is Social Security. The current trust fund balance is about $2.5 trillion ($2,539 billion of March 31, 2010 ; source: http://www.ssa.gov/OACT/ProgData/assets.html) and outlays are about $700 billion/year. In 2010, the outgoes are already starting to exceed the income. Unfunded liabilities for Social Security are estimated at about $14.4 trillion. There is a very good article about the problem here: http://www.zerohedge.com/article/social-security-mid-year.

2. Next, there is the problem with Medicare, which has unfunded liabilities of $75.7 trillion. Obamacare isn't going to make this go away, instead it will make this number much larger.

3. The prescription drug program (Medicare Part D) has unfunded liabilities of about $19 trillion. This number seems way too high to me, since actual expenditures in FY2008 were only $49 billion; however, the cost of closing the "doughnut hole" must be enormous.

4. Federal pensions. Unfunded retirement benefits for federal civilian employees and military members are about $5.3 trillion (see http://www.gao.gov/financial/fy2009/09stmt.pdf) . The annual cost is about $120 billion for federal employees and $63 billion for military.

5. PBGC insures the pensions of 44 million American retirees at private companies. The PBGC had a $10.7 billion deficit as of 9/30/2008. Everytime a big company like GM declares bankruptcy, the PBGC ends up picking up the tab for the shortfalls in the company's pension plan.

6. State and local pensions face a $1 trillion deficit ($3.35 trillion owed less $2.35 trillion invested to pay for them; source: http://www.pewcenteronthestates.org/uploadedFiles/Trillion_Dollar_Gap_embargoed.pdf). Although there is no explicit federal guarantee backing up this shortfall, it is inconceivable that the federal government would allow state pension plans to default.

Conclusion: I don't care enough about this aspect of the problem to try to get better numbers. My point is that the federal government is directly or indirectly responsible for paying the pensions of nearly all seniors, with the only exception being small plans that aren't insured by the PBGC. None of these unfunded liabilities are included in the calculation of the national debt. As the bills for these "sacred" promises become due, the national debt will continue to increase.