![]() ![]() When observed through the lens of health status, a 78-year-old woman in 2000 was the same age as a 69-year-old woman in 1940. And these folks are actually "younger" than the previous generation. Indeed, all the extra years of life gained in the last 70 years have been spent in retirement. Shultz and Shoven's most promising recommendations to solve the problem involve increasing older workers' participation in the labor force through public policies that give them an incentive to do so. Unfortunately, a major difficulty in addressing the crisis of unfunded liabilities is that Americans' savings rate is now close to zero, having steadily declined since the 1980s. In fact, male life expectancy at age 65 has increased by one month per year for the last 30 years. In 2004, life expectancy at age 65 was 16 more years for men and 19 years for women. When Social Security began in 1935, an average 65-year-old man could expect to live 12 more years, and a woman 13. ![]() One benefit of our expensive, innovative health care is that people are aging better. They note that while health care and pension liabilities form an increasing slice of the nation's fiscal pie, we have a number of methods to grow the entire pie (i.e., GDP). ![]() Remarkably and quite happily for their readers, Shultz and Shoven face this perfect fiscal storm with optimism, proposing solutions that restructure pensions without raising taxes. Indeed, Shultz and Shoven fear that the PBGC might need a taxpayer bailout! Americans might not count retired commercial airline pilots among the suffering, huddled masses of the world, but their loss is symptomatic of a systemic crisis. Furthermore, because the PBGC's maximum insured pension is $45,000, pilots who retired with pensions of $100,000 suffered serious cuts in their pension income. The biggest recent pension default resulted from the bankruptcy of United Airlines, which took from 2002 to 2006 to work out. These schemes are not in good shape: between 20, over 20 companies defaulted on their "pension plans of more than $100 million in size." Although insured by the Pension Benefit Guarantee Corporation ( PBGC), the PBGC's premiums have not kept pace with the rate of defaults. Such plans are the liabilities of the firms rather than the property of the employees. Although most companies have adopted defined contribution plans such as the 401(k) in the last 25 years, there is still a critical overhang of companies with defined benefit plans. Many older companies also have defined benefit pension plans (often with retiree health benefits) that are on shaky ground. Nor is the bleeding confined to the public sector. New York City's chief actuary has declared that its assumptions are so unrealistic that the official estimates are "meaningless." According to the authors, Maryland has an unfunded liability of $20 billion, nearly double its annual general fund budget. The Government Accounting Standards Board (GASB) requires all public employers to have booked these liabilities by the end of 2008. Until recently, they have hidden these from taxpayers. And it gets worse: state and local governments also have massive unfunded liabilities for their retired public servants' health benefits. ![]()
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