Nationwide, the collective underfunding of state pension plans is at least a trillion dollars under the most optimistic assumptions, and more like
3 trillion dollars with more realistic assumptions. These onerous financial liabilities will soon cut into everything that state governments do. In Rhode Island, for example, the state treasurer has reported that state payments to pension plans
... [Show full abstract] were 3% of tax receipts in 2002, but will soon rise to 20% of tax receipts, thereby forcing the state to cut back on firefighters, police, roads, health care, and everything else.The solution, painful as it might be, is to cut back on pension benefits for current workers or even for retirees. But the problem is how to do this in a way that is most fair to workers and in a way that is consistent with state or federal Constitutional provisions that prohibit states from impairing the obligations of contracts. These have generally been construed to protect benefits promised to state employees. In some cases, state courts have ruled that state workers are entitled to the highest pension benefit that was ever put in place their entire working lives, and that benefits cannot be changed even on a going-forward basis. On the other hand, some state courts have recently held that retirees may be retroactively denied a benefit that was promised to them for a substantial portion of their careers.I suggest a middle ground approach as most consistent with what was contractually promised: to the extent that state employees were promised a particular accrual formula for some portion of their career, they were giving consideration for those benefits and should therefore be presumptively entitled to that accrual formula for a proportionate share of their pension benefits.